EY India's quarterly defence news-letter.

1. Contents title
Contents subjects
June 2015
Eye on Defence
Dear readers,
The manufacture and possession of arms and ammunition is regulated
under a licensing system established by the Arms Acts (1959) and Arms
Rules (1962), and is under the Government’s purview. The manufacturing
of small arms for armed forces/para-military forces/police, is confined to
the Department of Defence Production viz Ordnance Factories (OFs). The
manufacture of small arms, light weapons and ammunition thereof has not
been allowed in the private sector. In the past, the MHA had promulgated
a draft Arms and Ammunition Manufacturing Policy, which allows the Department of Industrial
Policy & Promotion (DIPP) to issue licenses to the private industry for the manufacture of arms and
ammunition. Though some of the industries had applied and received an Industrial License for small
arms and ammunition, eventually the case did not progress as the MHA was unable to issue the
licenses. With increasing shortfall in terms of the technology and the volumes of small arms required
by the forces, the Government has decided to involve the private sector in the manufacture of small
arms. A draft Arms Act-2015 has been formulated, wherein the private industries will be allowed to
manufacture and proof test arms & ammunition of all kind including the ones being used by military.
It has been indicated that within 2-3 months, this act is likely to be promulgated. This issue of the
Eye on Defence intends to study the various regulations affecting small arms manufacture in India,
existing inventory, and the opportunities arising out of this market for the private sector in the near
term, while outlining the concerns and issues related to small arms manufacture in India.
The revision of the Defence Procurement Procedures (DPP) is a bi-annual exercise, resulting
from stakeholder discussions, industry feedback and experiential learning. The Government has
recently set up a 10 member Committee to review DPP-13, with a view to enhance transparency
and ease procedures within defence procurement, in line with its “Make in India” initiative, for the
defence and aerospace industry. In the current issue of the Eye on Defence, we have included a few
recommendations that may be useful in bringing efficiency and transparency into the policy, while
addressing issues that are faced by the private sector during participation in projects governed by the
DPP.
Among the regular sections, we have industrial license applicants, RFIs/RFPs released, new projects
and investments, JVs and alliances, country-level deals and the latest buzz in the industry.
I hope you find this issue useful. It has been our constant endeavor to make this publication
increasingly relevant to you, and we will appreciate your comments and suggestions.
K. Ganesh Raj
Partner and Leader
Contents
Introduction
Small arms manufacturing in
private sector
Realigning DPP to create an eco-
system with futuristic outlook
Request for Information (April–
June 2015)
Request for Proposal (April–June
2015)
List of Industrial Licenses (ILs)
filed for March – April 2015
New projects/investments/
contracts
JVs and alliances
Country level deals and
initiatives
Industry buzz
1
2
12
16
17
19
20
22
23
26

2. 2 | Eye on Defence
The manufacture and possession of arms and ammunition
is regulated under a licensing system, established by the
Arms Acts (1959) and Arms Rules (1962), and is under the
Government domain. These regulations cover all aspects
of lawful possession, manufacture, sale, transfer, transport,
export, import of arms and ammunition, and provide
penal provisions for violation of these acts. The Central
Government legislations and State Governments have a
specified role in their implementation. These provisions seek
to classify fire arms and other prohibitive weapons so as to
ensure that military “patterns” are not available to civilians,
and weapons for self-defence can be possessed only under
duly issued licenses. All small arms produced/manufactured
in India are uniquely marked, and private firms authorized
to manufacture firearms are required to maintain a gun
manufacturing register, which records information including
serial numbers and date, month and year of manufacture.
These legislations and various executive instructions from
the Central and State Governments have evolved a good
mechanism for effective control and regulation.
The manufacturing of small arms for armed forces/para-
military forces/police, are confined to the Department of
Defence Production viz Ordnance Factories (OFs). Even after
liberalization of the Indian economy and removal of licensing
regime for major industries, the manufacture of small arms
and light weapons and ammunition thereof has not been
allowed in the private sector. The private sector is primarily
engaged in the manufacture of single/double-barrel and
air rifles/pistols. In the past, the MHA had promulgated a
draft Arms and Ammunition Manufacturing Policy, which
allows the DIPP to issue a license to the private industry for
Likely holding of various types of serviceable small arms by the armed forces:
Rifles - .8 Mn ; Carbines/pistol/LMG - .3 Mn
A similar ratio of 75:25 is expected in the Para military forces/police forces.
Source: Data gathered by EY from sources accessed between 1 and 15th June 2015
Small arms manufacturing in private sector
the manufacture of arms and ammunition to be “primarily
supplied to the Central Paramilitary Forces, Defence and
State Governments on a tendering basis.” Though some of
the industries had applied and received an Industrial License
for small arms and ammunition, eventually the case did not
progress as the MHA was unable to issue the licenses.
The technology involved in the manufacturing of small
arms is neither critical nor difficult to acquire. However,
the government is yet to allow private players to strategize
and lead the manufacture of small arms, in spite of the
Indian private industry’s willingness to invest in defence
indigenization. This has resulted in a situation where the
military is dependent on foreign suppliers for most of its
requirements, especially in areas of critical technologies,
and the nation has to spend foreign exchange on small arms
import.
A draft Arms Act-2015 has been formulated and has been
put in the open domain for comments from all sections of
stakeholders, wherein the private industries will be allowed
to manufacture and proof-test arms and ammunition of all
kind, including the ones being used by military. It has been
indicated that this act is likely to be promulgated in the next
three months.
Existing Inventory: small arms
The major users of small arms are the three defence
services, para-military forces and the state law enforcement
agencies. The Indian inventories are estimated to contain
around 3 million small arms.
Concerned org. Army Navy Air force Paramilitary State police
No. of personals 1,100,000 70,000*
incl ICG
130,000 850,000 1,600,000
Estimated small
arms
1,100,000 32000 52,000 800,000 1,200,000
Small arms market by end-users
Armed forces Law enforcement Civilians

3. 3Eye on Defence |

4. 4 | Eye on Defence
The Army is currently using the DRDO-designed and OFB-
built INSAS 5.56 mm rifle, introduced into service in the
mid-1990s, which is long due for replacement. Most of
the other small arms and ammunition held by the defence
services are of foreign design, and manufactured under
license in India but efforts are on to progressively design and
manufacture equipment indigenously. The emerging nature
of warfare requires a more efficient small arms system in
the battlefield for improved performance, i.e., with optical
sights, accessory rails, dual magazine clips, self-luminous
reflex sight for the Under Barrel Grenade Launcher ( UBGL)
and single-eye night vision with head band.
Year
Target
Accepted
OFB supply
value
% Of
slippage
2009-10 4,280 2,746 36
2010-11 5,140 3,688 28
2011-12 5,630 3,720 34
2012-13 5,870 3,677 37
(Source: Extracted from CAG Report on Ammunition 19 of 2015)
Small arms
Average annual
production
capacity
Remarks
5.56mm INSAS/
7.62mm SLR rifle
60,000-70,000 5.56mm INSAS in
service since 90s
7.62 LMG/MMG 2,000 ---
Pistol/revolver 25,000-30,000 All (9mm, .32”
and .22” caliber
Sporting rifles 12,000-15,000 ---
(Source: compiled by Q-Tech Synergy and EY from sources accessed
between 1 and 15th June 2015)
Year Number of items Shortfall
demand vs
delivered %
Shortfall
target fixed vs
achieved %Demand A Target Set
Target
achieved
Target missed
2009-10 605 434 300 134 50.50 30.88
2010-11 1016 639 416 223 60.0 34.90
2011-12 982 547 195 352 80.15 64.35
(Source: CAG Report No, 24 of 2011-12)
Indigenous production: arms and ammunition
The manufacturing of small arms and ammunition for
armed forces/para-military forces/police is confined to the
Department of Defence Production viz. Ordnance Factories
(OFs). DRDO is responsible for the design and development
of all major defence equipment, leading to the production
of weapon systems and equipment. According to Report
No. 24 of the Comptroller and Auditor General of India,
Ordnance Factories have been lagging behind in their
production program for ammunition and weapons. These
figures though, reflect the overall position; however, it can
be inferred that the targets have not been achieved, even
with respect to the production of arms and ammunition.
Annual production OFB Small arms production capacity

5. 5Eye on Defence |
It is evident from above data that the OFB has not been
meeting the requirement of defence services, and that
private sector participation is needed to augment the
capacity.
Import
In view of the gap in design, development and production
capability the Arms import on the average has been about
INR33 billion (US$500 million) per year as shown below:-
Source: SIPRI data
India’s arms import
1200
In$Million
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
800
400
1000
600
200
0

6. 6 | Eye on Defence
Name Type Origin Remarks
Glock 17 Semi-automatic pistol Austria Standard issue special forces (SF)
pistol
Beretta 92 Semi-automatic pistol Italy ---
SIG Sauer P226 Semi-automatic pistol Germany GermanySwitzerland
Micro-Uzi Sub-machine gun Israel For use by SF
Heckler & Koch MP5 Sub-machine gun Germany MP5A3, A5, SD3 and SD6 models in
service
Heckler & Koch Sub-machine gun MP5K Germany Shortened version of the MP5 used
by SF
AKM Assault rifle Soviet Union AKM fixed stock and AKMS under-
folding stock variants used
Arsenal Co. AR Assault rifle AK-47 Bulgaria Police and paramilitary forces; used in
some quantities by Army as well.
MPi-KM Assault rifle MPi-KM-72 and
MPi-KMS-72
East Germany Both Bakelite and wooden lower hand
guard variants used
Pistol Mitralieră model 1990 Assault rifle Romania Romanian version of the AKM.
Palmswell lower hand guard versions
in use
AK-103 Assault rifle Russia ---
Vz. 58 Assault rifle Czechoslovakia Vz. 58 P fixed stock and Vz. 58 V side-
folding stock variants used
IMI Tavor TAR-21 Assault rifle Israel 3070 purchased for the SF
M4A1 Carbine Carbine US Bought under FMS. For use by Army
and SF
Dragunov SVD59 Sniper rifle Soviet Union Standard sniper rifle
IMI Galil 7.62 Sniper rifle Israel For use by Army and SF
Mauser SP66 Sniper rifle Germany Standard bolt-action sniper rifle
Denel NTW-20 Anti-material rifle South Africa Bought in small numbers
Gepard GM6 Lynx Anti-material rifle Hungary For use by the Indian Army and SF
PKM General purpose machine
gun
Soviet Union Co-axial weapons in Russian produced
for T-90S Bheeshma, T-72M Ajeya and
BMP-2S Sarath. Also used by SF
Browning M2 Heavy machine gun US ---
NSV Heavy machine gun Soviet Union ---
KPV Heavy machine gun Soviet Union ---
Source: Compiled by Q-Tech Synergy and EY from sources accessed between 1 and 15th June 2015
Main imported: small arms

7. 7Eye on Defence |
In view of the gap in design, development and production
capability, some of the major imports given in the table are
in the pipeline.
Item Category Quantity Worth Source/competitors
CQB carbine
Indian Army
Buy and make
Tender issued:
Status: trials are
over
44,618
carbines along
with 33.6
million rounds
of ammunition
INR 22-27.50
billion
(US$400-500
million)
IWI Israel
Italy’s Beretta
USA’s Colt
Sig Sauer
ToT and to license-build some 380000 -
400000 carbines. OFB is the production
agency.
Light-weight
assault rifles for
Para-SF
Buy
RFI Issued: Jan
11
10,730 INR 3.85 billion
(US$70 million)
FN Herstal
Beretta
IMI
IWI
Heckler & Koch STK
7.62 mm light
machine gun for
Army
Buy
RFI Issued: Jan
10
TOEC underway
Qty: 4,400 Over INR 5.30
billion
(US$96 million)
Israel Weapon Industries (IWI)
Arsenal Bulgaria
12.7 X 99 mm
/.50 heavy
machine gun for
Indian Army
Buy
RFI issued: Mar
10
Unspecified ---- Rosoboronexport (Degtyarev Kord 12.7 mm
HMG)
General Dynamics (M806 HMG)
Browning M2E50
Source: Compiled by Q-Tech Synergy and EY from sources accessed between 1 and 15th June 2015

8. 8 | Eye on Defence
Capability Gap
The capability gap comprises four counts — Vintage design,
design capability, production capability and heterogeneous
inventory.
Our small arms holding is a mixed bag in terms of design,
in the absence of own design/development capability. The
inventory of small arms clearly reflects our inability to
develop an indigenous next generation successor of small
arms. This puts enormous pressure on logistics.
The OFB/DPSUs do not have the technology for delivering
the next generation of small arms, and do not have the
capability to produce the huge quantities required for
replacement or making up the deficiencies. Despite an
in-house requirement and assured orders, the design and
production agencies have not been able to meet the forces’
huge requirement, which has resulted in India spending
billions of dollars on small arms import.
Small arms have a life of about 20 years, depending on
their uses and how well they are maintained. Taking the
overall requirement of small arms for the military and
paramilitary forces to be less than three million and the life
of the weapon as 20 years, as explained above, we need
a production capability of approximately .015 million per
year for the replacement cycle to ensure that the military is
always equipped with the latest technology small arms.
With an annual production capacity of around .1 million
small arms of all types against the required quantity for
replacement, our existing production capacity is inadequate.
The ordnance factories will be unable to meet even the
annual replacement requirement of the military, not
counting the requirements of the para military forces.
With the existing production capacity of OFs, it will require
more than three decades to produce the state of the art
weapon and the required quantities to meet the modern day
challenges.
Capital projects planned of
land systems (2012-2027)
Resources
projections (In INR
billion)
Artillery 360
Missiles and missile systems 950
Tanks and tanks upgrade 1400
Arms for infantry 220
Helicopters 60
UAVs 60
Communication systems 750
Miscellaneous gear 1000
Raising of mountain strike corps
(MSC)
700
Total 5,500
Tanks and Tanks
Upgradel 25%
Missiles and Missile
Systems 17%
Miscellaneous Gear
18%
Communication
System 14%
Artillery 7%Raising of mountain strike
corps (MSC) 13%
Arms for Infantry 4%UAVs 1%
Helicopters 1%
Land systems breakdown 2012-2027
Source: Compiled by Q-Tech Synergy and EY from sources accessed
between 1 and 15th June 2015

9. 9Eye on Defence |
Market opportunity
The Indian army plans on equipping its 362 infantry
battalions, over 100 counter insurgency units and special
forces with a modular, multi-caliber suite of small arms
through imports and local licensed manufacture in one of
the world’s largest such contracts, worth INR385-440 billion
(US$7-8 billion). The army is on the lookout for better and
state-of-the-art weapons for its Infantry to replace/augment
its existing holdings.
The Futuristic Infantry Soldier System (F-INSAS) program
is designed to equip Indian infantry soldiers with the most
modern weaponry and equipment, including an advanced
lightweight rifle, GPS receiver, helmet-mounted night-vision
devices and handheld computers with instant access to
information on the battlefield.
The program, which will be implemented in phases, is spread
over the Twelfth, Thirteenth and Fourteenth five-year plans
(2012-27). About 10 infantry battalions (each with 800-
1,000 soldiers) are likely to be equipped by 2010-2015
for F-INSAS user trials. In the first phase, to be completed
shortly, the infantry soldiers will be equipped with modular
weapon systems that will have multi-functions. Though
the plan was to implement F-INSAS across all the 362
infantry battalions by 2020, it has suffered some delays.
The first phase then envisaged a cost of over INR275 billion
($5.5 billion). Just the mega project for new assault rifles,
with interchangeable 5.56 mm and 7.62 mm barrels and
holographic reflex sights to replace the 5.56 mm INSAS
rifles being used, could alone run over INR220 billion
(US$4.4 billion).
In addition to this, other smaller procurements have been on
from MHA and specialized forces.
The paramilitary and police personnel will require around
two Million small arms, worth over INR135 billion (US$3
billion) in the next 5-10 years. In due course, the forces are
expected to employ the same weaponry as the army.
Issues and concerns
Quality and cost: The INSAS AR project took nearly 15
years to bear fruit, and experts claimed that it was also
not in consonance with modern engineering production
techniques and was expensive, besides serious defects such
as frequent breakdown of moving metal parts and cracks in
its composite material and plastic magazines, due to bulging
barrels. Priced at around INR18,000 each, it is expensive as
compared to the imported ones.
Standardizing the inventory: We also need to standardize
our small arms caliber and ammunition to reduce the overall
logistics. The defence and para military forces already
have a very heterogeneous inventory, and since the 2008
Mumbai terror attacks, due to generous modernization
budgets, Indian security agencies are relying less on
domestic production of arms and more on modernization
through imports. The products from different manufacturers
have nothing in common in terms of ammunition, spares
and training for performing similar security roles, thus
making the Indian small arms inventory “a bowl of assorted
weaponry.” Manufacturing small quantity of ammunition for
the assorted inventory may not be cost effective and hence,
will have to be imported. We need to have inter-operability
(similar caliber and ammunition) of weapons across the
defence and paramilitary forces.
Security concerns: Small arms also play a role in
contributing to terrorism, insurgency, violations of human
rights, drug trafficking, etc., through direct use or the threat
of use. There are 95 firms licensed by the MHA, Government
of India for the manufacture of guns (single barrel/double
barrel) and 25 firms manufacturing cartridges (either blank
or live cartridges or both) up to the quota permitted in their
licenses. This stems from security concerns of pilferage
vis-à-vis the manufacture of these systems, as well as
the competition which OFB may face, should viable and
sustained private sector participation take place. Indian
security concerns relating to small arms and ammunition
primarily stems from the growth of the illicit small arms,
which are as follows:
• Illicit manufacture of country-made hand guns in
large numbers at small scale industrial manufacturing
facilities spread throughout the country
• Losses of arms and ammunition from government
stocks
• Thefts from stocks of de-commissioned weapons and
from inventories of seized weapons
• Weak inventory surveillance and reporting mechanism,
not being mandatorily investigated
• Illicit smuggling of arms and ammunition across India’s
international borders, with the major ingress routes
being Jammu and Kashmir, the Maharashtra coastline
and the North-East states bordering Myanmar and
Bangladesh
Recently, an extensive security manual has been prepared
by the Government in consultation with all the stake holders.
The licensing authority must ensure that the security

10. 10 | Eye on Defence
conditions discussed in this manual are fully complied
with, before granting a license for the commencement of
commercial production of firearms and ammunition. With
the provisions being imposed on private industries, they too
will ensure that no illicit manufacturing and proliferation
takes place, and the industries will have to ensure the
security concerns for their own reputation.
Way ahead
The technology involved in the manufacturing of small arms
is not complex. The Government’s intent to allow private
players to play a strategic role in manufacture of small arms
will play a major role in defence indigenization, given they
have a level playing field and competitive environment.
Public-private partnership has to be promoted by the
Government to promote indigenization, to create the much
needed defence industrial base and generate economic
spin-offs. Of course, the necessary security and regulatory
provisions can be insisted upon. Despite the concern, the
effort to ramp up domestic small arms production is a step
in the right direction to make the armed forces more self-
reliant, for equipment is critical for a country seeking to play
a larger strategic role.
References
• “Recent Audit Reports”, CAG website, http://www.
saiindia.gov.in/english/index.html, accessed on 2 June
2015
• SIPRI Arms Transfer Database”, SIPRI website, http://
www.sipri.org/databases/armstransfers, accessed
between 1 to 10 June 2015
• “Small arms of the Indian State”, Indian-ava website,
http://www.india-ava.org/fileadmin/docs/pubs/IAVA-
IB4-small-arms-of-indian-state.pdf, accessed on 1 June
2015

11. 11Eye on Defence |

12. 12 | Eye on Defence
Realigning DPP to create an eco-system with
futuristic outlook
There have been several revisions to the DPP from 2002
to 2013, based on the experience gained and the feedback
from the users and the industry, and yet the procurement
process continues to be cumbersome and prone to delay.
The ongoing dialogue could go a long way in building
enhanced confidence and trust in the MoD’s procurement
procedures. The MoD has undertaken consultations in the
past also, as the current “Make” procedures were based on
recommendations of an inter-disciplinary group. However,
a decade on, only a couple of projects under the “Make”
category have been conceived so far. The MoD is reported
to be in the process of reviewing the DPP yet again. While
this is a welcome step, past experience shows that the effort
remains largely confined to the micro issues at the cost
of several macro issues that are also important from the
point of view of expediting the procurement process. The
Government has recently set up a 10 member committee
to review DPP 2013. Headed by a former home secretary
to the Government of India, Dhirendra Singh, it has experts
drawn from different fields. Another IAS officer, Satish B.
Agnihotri, who retired in February this year as Secretary,
Coordination in the Cabinet Secretariat, had been a former
Director General, Acquisition, in the Defence Ministry not
very long ago. Air Marshal S. Sukumar, who retired a couple
of months ago, was known as a specialist in procurement
and acquisition throughout his long career in the Indian
Air Force. Similarly, Lt Gen AV Subramaniam, an EME
officer, recently retired as Director General, Weapons and
Equipment from the Army HQ and has extensive knowledge
about the obstacles in quick procurement and acquisition
and so does former naval officer, Rear Adm. Pritam Lal, who
too specialised in this segment at the Naval HQ.
An ex DRDO Scientist, Pralhada, retired Colonel KV Kuber,
who has worked extensively with the Micro, Small and
Medium Enterprises (MSMEs) over the past decade and Sujit
Hardas, Deputy Director General of the CII’s Defence wing,
make up the non-government component of the committee.
The committee has been asked to submit its
recommendations within a fixed time frame. The terms of
reference given to the committee are:
• Evolve a policy framework to facilitate “Make in India”
in defence manufacturing and align the policy evolved
with DPP 2013.
• To suggest the requisite amendments to DPP 2013, in
order to remove the bottlenecks in the procurement
process and rationalize various aspects of defence
procurements.
While the report and Government acceptance on renewal of
policy framework to facilitate “Make in India” in the defence
sector is eagerly awaited, the expectations from the industry
segment are to rationalize the procurement procedures and
remove the bottlenecks for long term association.
The indigenous capability gap in the given geo-political
scenario due to the continuing dependence on imports is
a concern, and would mean a certain vulnerability to the
technology denial regimes, and a variety of coercion that
could render the imported hardware unserviceable. We need
to ramp up the defence industrial capabilities in order to
meet the security challenges, and to enhance operational
preparedness, strategic autonomy and self-reliance. The
objective of quest for self-reliance in defence preparedness
is a source of strategic and economic edge. The industry
being a vital stakeholder, as well as a key enabler in this
national security paradigm, needs to play a greater role in
capacity building to meet the challenges to our security.
India, with its own huge domestic requirements, availability
of skilled work force, opportunities to export, and an
environment where the industry leaders appear eager to
collaborate, faces the challenge to create an eco-system
conducive to strengthening the indigenous capabilities in
design and development, manufacture, and the subsequent
up-gradation of the equipment.
The policy and procedures should have a futuristic
outlook with commensurate resource allocation. Defence
procurement needs to be fully insulated from competitive
pressures, by removing the inevitable distortion of
competition by nomination. A need is felt to bring structural
changes in MoD and appoint an independent nodal officer
to look after the capability development irrespective of the
public/private sector. The following measures are suggested
to be adopted in the revised DPP to incentivize the growth of
a domestic defence industry:
Categorization
The DPP now mandates a preferred order of categorization
and the next set of DPP reforms could therefore, focus
on improved information-sharing protocols between
the MoD and the Indian industry. Presently, five ways of
categorization exist and four of them are similar to “Make
in India.” However, we need to decide whether to focus on
all four or one of them. It is suggested that the number
of categories be reduced to only three for ease of doing
business and these should be on the following lines:
• Make in India

13. 13Eye on Defence |
• Made in India
• Buy global
Make in India
This will be applicable for all acquisitions presently covered
under the “Buy Indian” and “Buy and Make Indian”
initiatives, beside any other initiative that will cause
manufacturing to happen in India, wherein a demonstrated
capability already exists or can be created with ease by the
industry; and furthermore, where the necessary industry
can co-associate DRDO in the bid process. Also, the industry
can take benefit of the technologies developed by DRDO,
in similar programs or offshoot programs. This is to be
achieved by facilitation of industries of other countries to
set up shop in India, manufacture goods and sell within and
outside the country. This will also include the operational
necessity to procure the equipment in an expeditious
manner, while a certain quantum of demonstrated
capability is available in the country. The minimum specified
indigenous content should be 50%, which could include
design, raw material, manufacturing and other disciplines
of production. This will incentivize MSMEs by encouraging/
mandating the prime contractors to outsource at least 20%
of the platform under development/production through
them. To support the manufacturing sector, incentives for
higher indigenous content must be provided.
Made in India
This will replace the category of “Make,” and is capable of
building our home grown industry to innovate and develop
niche technology in core areas. Manufacturing and supply
chain will be fully realized in India. Industries must be
involved in the process from EOI/RFI stage onwards, till
mass production. This will have more flexibility in terms
of engagement at the supply chain level. Industry should
have the first right of refusal for taking up “Made in India”
projects.
Buy global
This will subsume the present “Buy global” and “Buy
and make global” with ToT. This should be on an Inter-
Government route. Only those programs that cannot be
procured through the “Make in India” or “Made in India” will
be procured through this route.
Indigenous content
The Government should also think of giving special
weightage for indigenous design with local manufacturing
content, instead of simply stating indigenous content. In a
“Buy global” procurement scenario, if an Indian company
with indigenous design and with at least 75% indigenous
content, clears the trials successfully but is not L1, the order
should be split 50:50 with L1.
Procurement under No Cost Full Commitment
(NCFC)
Presently, most procurements by the MoD are on a “No Cost
No commitment” (NCNC) basis, wherein it is not necessary
that the procurement process will culminate in a contract/
supply order. Some of the MoD procurement from the
Indian industry should be carried out on an NCFC basis.
FDI: 49% v. 51%
The FDI has been increased from 26% to 49%. However,
there is a serious debate whether it should be 49% or
51%. With 26% FDI in defence till Budget 2014, the inflow
has been abysmally low to the point of irrelevance. With
49 %, it is unlikely to be tangibly different, given that the
disincentives associated with 26 % cap on FDI remain largely
unaltered.
It is time we consider raising FDI limits to 51% and above
in certain segments of defence technologies. The so-
called provision to approve higher investment depending
on the nature of technology to be transferred has never
been approved for the private sector, especially given the
unwillingness of existing suppliers to share key technologies
without majority holding. One way of circumventing
this difficulty would be to open up the sector for foreign
investment.
Promoting defence export
Besides technology-linked FDI, the government must strive
for scale economies, encouraging domestic players — public
and private — to invest in capacities with an eye not just on
India’s defence forces as clients, but also those of foreign
countries. Defence equipment production is capital intensive
and tying down suppliers to a single customer’s whims may
not really result in adequate investment.
Restructuring defence production and
acquisition
In the whole process of defence production and acquisition,
there are too many decision-makers. The offsets are the
responsibility of DDP, which is more concerned with the
production in the Government sector and not interested in
creating capability. DRDO has its own turf to defend. The
Government needs to decide who will have the lead role in
the final decision in creating capability.

14. 14 | Eye on Defence
Sharing the vision and plan
The modernization vision and plan for defence equipment
needs to be shared with the industry as stake holders,
to provide them a macro vision. A realistic requirement
generation process must necessarily be driven and
dominated by a “demand-pull” approach rather than
by a “technology-push” approach. Building capability is
team work. To this end, consultation with the industry on
Long Term Intigrated Perspective Plan (LTIPP)/ Annual
Acquisition Plan (AAP) would go a long way, besides regular
and mutually beneficial brain-storming sessions with the
industry by the MOD and Services HQ. Adopt multi-year
procurements for mature programs from the sources with
demonstrated capability.
Private sector
This point has been put forward in every forum by the
private industries to provide competitive and parity in all
Government facets. DPSUs and OFs have to be treated
at par with private industries, and be made free from the
Government’s policy constraints, if any. We need to identify
capable Indian industries as national champions in each
sector of defence manufacturing, which in turn will be
overall integrators with similar facilities as the DPSU, on
the lines of the Kelkar Committee recommendations. These
champions will be dedicated developmental partners in
defence products design, production and maintenance with
their own supply chain.
Timelines
Timelines have been defined in the present DPP for a project
to fructify; however, these have not been adhered to even in
a single case. This has to be stipulated for strict adherence
and personnel responsible must be made accountable.
Creation of technology fund
Developing defence technology is a costly affair and that too
without commitment. Hence, a technology fund needs to be
created by the Government to assist select private industries
in defence R&D.
Offset
The new draft offset policy 2015 proposes an outcome-
based approach, and also seeks offsets for specific
technologies, identified areas of manufacturing and skill
development. Some of the suggestions of the private sector
and for an OEM are as under:-
Offset applicability : The new draft offset policy meant only
for “Buy global” category, should be extended to the “Buy
and make” category also, where industry imports material
from an OEM and makes in India, based on the transfer of
technology, provided they value add at least 51% to the
value of asset procured. It will keep the door open for an
increase in the offset content, based on the requirement of
defence forces at the time of requirement.
TOEC: The details of Indian Offset Partner (IOP)-wise
work share, specific products and supporting documents
indicating eligibility of IOPs should be asked at a later stage,
once the L1 has been selected. The offset offers should
also be asked from downselect with suitable checks and
balances.
Obligations spread and timeframe: The MoD may
prescribe a fixed quantum of offset discharges with
the passage of period of performance, to ensure even
distribution of work share in the offset period.
Discharge: Tier-1 suppliers should be allowed to discharge
offset obligations on behalf of the foreign OEM for all offset
contracts currently under execution, and they should be
permitted to discharge offset beyond the extent of their
work share. Permit tier-2 and IPR owner of subsystems to
discharge offset, but not necessarily proportion to their
share.
Group companies should be permitted to execute offset
obligations on behalf of the contracting company. The
objective once again is to enable OEMs in every possible
way, to perform and deliver on offset commitments in a
robust fashion, as opposed to restricting their ability to
perform.
Value addition: A market-based approach to the Indian
value addition requirement would be to incentivize higher
levels of indigenous content, which in turn would incentivize
sourcing of higher complexity work packages, thus
increasing aerospace manufacturing volumes, and creating
the conditions for raw material (fully imported) suppliers to
invest in facilities in India.
ToT Related Issues: ToT should be made directly to the
Indian industry/selected IOP rather than only to DRDO, who
may then disperse the technology to unidentified industry
participants, as it may create licensing rights issues and
unacceptable commercial risk for the OEMs. Practically,
OEMs do not possess all IPRs for platform-related

15. 15Eye on Defence |
technologies, as many of such vest with their Tier suppliers.
ToT in select areas be made mandatory as offsets.
Creation of manufacturing capabilities: The Government
should recognize the investment in JV or manufacturing
facility of the domestic partner as an additional avenue to
discharge the offset. Identify the parts/components/sub-
components/sub-systems, etc., to be manufactured in India
along with maintenance technology to be transferred to the
Indian entity.
Skill development: The present policy puts skill
development as an objective of the offset policy, but
industry sources point out that skill development should
be the outcome, rather than the objective. Recurring
training costs should be creditable if funded by the vendor
for associated party. Success criterions for the amount of
training deliverable should also be considered.
Offset contract amendment: Any request of change of the
IOP and offset component, etc., should be made automatic
if the work package/IOP is pre-approved.
Buyer Nominated Equipment (BNE) under offsets: The
MoD should approve acceptance of offset credit claims of
OEM for sourcing BNE.
Services still held in abeyance: The MoD office memo
dated 23 May 2013, holding services in abeyance until
further orders, needs to be withdrawn with partial
modifications.
Retrospective applicability: The offset obligations are
governed by the DPP version, under which the RFP has been
issued. The offset process has been refined over a period of
time and the current policy need to be made applicable to
ongoing cases retrospectively.
Conclusion
It is hoped that the new DPP, which the Defence Minister has
promised would be out at the earliest and would tackle all
these aspects. It is only through simplification, simultaneity
and micro- management of disparate activities and
unambiguous enunciation of the procedure that problems
of retraction and delay can be surmounted. The MoD needs
to focus on how to make it speedy and conclusive. None
of this, however, will work unless the MoD encourages
development of expertise in contract negotiation, as a
part of a larger organizational restructuring of the capital
acquisition mechanism.
The DPP needs to reflect the political thrust toward
enhancing domestic procurement and boosting purchase
of equipment from indigenously designed and developed
sources. A sound defence industrial base still seems to
be a distant reality. DPP provisions need to synchronize
procurement and acquisition to be in tune with technology
and cost effectiveness. LCC and up-gradation should be the
central issue for all procurement, and preferably, it should
be a long-term contract under capital acquisition.

16. 16 | Eye on Defence
Request for information
(April – June 2015)
Date of issue RFI detail/equipment Response date Issued by Remarks
5 June 2015 Construction of diving
support craft
6 July 2015 The Principal Director
of Ship Production
For IN
21 May 2015 Extended range (ER)
rocket ammunition for
122 mm Grad BM-21
Multi Barrel
1 July 2015 Arty Dte For IA
8 May 2015 7.62 X 54 mm lead
core ball ammunition
of Dragunov sniper
rifle
22 May 2015 Equipment
Management
Directorate,
For IA
1 May 2015 Land-based training
facility (LBTF) for
integrated platform
management system
(IPMS)
31 May 2015 Directorate of Marine
Engineering
For IN
24 April 2015 Light bullet proof
vehicle (LBPV)
29 May 2015 DGRR For IA
20 April 2015 War gaming and
simulation center
15 Jun 2015 PD ASR For IAF
17 April 2015 Basic pilotless target
aircraft (BPTA)
22 May 2015 DG Army
Air Defence
For IA
7 April 2015 Low level light weight
radar Mark-II
30 April 2015 DG Army
Air Defence
For IA

17. 17Eye on Defence |
Request for proposal
(April – June 2015)
Date of issue
RFP detail/
equipment
Response date Issued by Remarks
5 June 2015 Nirbhay power
cartridge
17 June 2015 ADE*Aeronautical
Development
Establishment
Issued By DRDO
30 May 2015 Aircraft refueller
cartridges. Coalescer
cartridge, Qty: 4 and
Separator cartridge,
Qty: 2
23 June 2015 STN CDR, 22 WING AF For IAF
15 May 2015 FRP single engine
speed boat with 4
Stroke OBM, Qty: 43
24 June 2015 Procurement Cell) DG,
BSF
For BSF
12 May 2015 IP surveillance system 12 June 2015 Defence Research
& Development
Laboratory
Issued By DRDO
11 May 2015 Life jacket (34) and
life buoys (15)
26 June 2015 Frontier HQ BSF M&C For BSF
6 May 2015 Medium machine gun
fire simulator,Qty: 8
9 June 2015 Directorate General,
Border Security Force
For BSF
6 May 2015 Gun powder for 155
mm ammunition
15 May 2015 Ordnance Factory,
Dehu
Issued By OFB
6 May 2015 Laser goggles and
accessories
20 May 2015 Aeronautical
Development
Establishment
Issued By DRDO
6 May 2015 Medium range chaff
rocket (MRCR)
29 May 2015 Ammunition Factory,
Kirkee
Issued By OFB
30 April 2015 NBC suit 20 May 2015 Defence Bio-
Engineering & Electro
Medical Laboratory
Issued By DRDO
28 April 2015 Aerostat radar, Qty: 1 21 May 2015 Directorate of
Procurement
Foreign Purchase
Wing (W)
For IAF
28 April 2015 Metal components of
mechatronic fuse
4 June 2015 Terminal Ballistics
Research Laboratory
Issued By DRDO
27 April 2015 Deep search metal
detector (DSMD), Qty:
03 Nos.
21 May 2015 CRPF, Amrabati, For CRPF
27 April 2015 Integrated plant for
manufacture of 9 mm,
cartridge case
10 July 2015 Ammunition Factory,
Khadki
Issued By OFB
27 April 2015 Half body suit, Qty: 10 11 Jun 2015 NSG Hehram Nagar For NSG

18. 18 | Eye on Defence
Request for proposal
(April – June 2015) (cont’d.)
Date of issue
RFP detail/
equipment
Response date Issued by Remarks
25 April 2015 Integrated plant for
manufacture of 5.56 X
45 mm cartridge cases
3 July 2015 Ammunition Factory,
Khadki
Issued By OFB
20 April 2015 Bullet proof watch
tower
15 May 2015 Security Officer
Air Force Station
Awantipur
For IAF
17 April 2015 Bullet proof jacket,
Qty: 50,000
19 May 2015 Dir OS GSandC – Army For IA
13 April 2015 Fuze holder DPK1-
1, FUSE PTS-30-
1, junction box,
connector
30 April 2015 OFB, Industrial Area
Phase I Chandigarh
Issued By OFB
15 April 2015 NI-based test bed with
target environment
simulator for IMR SAR
– sensor
7 May 2015 Defence Research
& Development
Laboratory
Issued By DRDO
13 April 2015 Integrated
communication
system Qty: 6
29 May 2015 DG NSG For NSG
13 April 2015 Bullet proof harness
with shoulder pad,
Qty: 4600
15 May 2015 DIG (PROV) For BSF
10 April 2015 Ballistic helmet Qty:
6478
18 May 2015 GOC-in-C, Northern
Command
For IA
8 April 2015 Combustile cartridge,
Qty: 800
30 April 2015 Armament Research
& Development
Establishment
Issued By DRDO
7 April 2015 Wind direction and
speed sensors, Qty: 2
28 April 2015 Directorate of
Meteorology, Air
Headquarters
For IAF
1 April 2015 RF Analyzer hand held
(4-6 GHz)
26 May 2015 Joint Director
EME(Eqpt)
For IA

19. 19Eye on Defence |
List of Industrial Licenses filed for
March – April 2015
Application no. and
date
Name of the applicant Item of manufacture
36
30/04/2015
M/S Avantel Ltd. Design, development and manufacture of radio
communication systems covering HF,VHF,UHF, etc.
35
27/04/2015
OIS Advanced Technology Pvt. Ltd. VTOL Tactical UAS
34
23/04/2015
NECO Defence System Ltd. Unmanned aerial systems
33
17/04/2015
DCX Cable Assemblies Pvt. Ltd. Submodules for communication antennas
32
16/04/2015
M/S Shan Arm Industries Pvt. Ltd. Ammunition, 10 mm and above, and those not
covered under small arms and ammunition
31
10/04/2015
Ideal Industrial Explosives Ltd. Manufacture of S.M.S/S.M.E Explosives.
30
09/04/2015
M/s Tebma Shipyards Ltd. Design and construction of naval warships, naval
support ship, submarines, underwater vessels, diving
29
09/04/2015
M/s Vem Technologies Pvt. Ltd. Explosives integration facility
28
09/04/2015
M/s Vem Thechnologies Pvt. Ltd. Unmanned aerial systems
27
06/04/2015
M/S Adani Defence Systems &
Technologies Ltd.
Helicopters
26
06/04/2015
M/S Ideal Industrial Explosives Ltd. Manufacturing of SMS/SME explosives
25
27/03/2015
Himachal Futuristic Communications
Ltd.
Armored or protective equipment
24
20/03/2015
M/S Aviahelitronics Infosystems Pvt.
Ltd.
Rocket motors and warhead part, nozzle
and fin assembly, motor tube and obturator
23
12/03/2015
OIS Advanced Technology Ltd. Artillery guns (155 MM X 52 caliber)
22
02/03/2015
M/S Aileni Venkateshwar Reddy Detonators (all types of), detonating fuse, slurry,
emulsion, bulk, SME, ANFO, styphnic acid, metal
cladding powder, PETN, cast booster
21
02/03/2015
M/S Elcom Innovations Pvt. Ltd. Radar of all types and parts thereof, electronic
equipment used for surveillance, intelligence,
command and control system
20
02/03/2015
M/S Regenesis Industries Pvt. Ltd. Detonating fuse, PETN, styphnic acid, cast booster,
NHN, detonators, slurry, emulsion explosives

20. 20 | Eye on Defence
New projects/investments/
contracts
Name of entity Project details Value*
Indian Navy, Larsen
& Toubro (L&T) and
Pipavav Defence &
Offshore Engineering
Company
• ► The Government of India (GoI) has selected L&T and Pipavav to build six
conventional submarines for the Indian Navy.
• ► The project will come under the “Buy and Make (India)” category, wherein
Indian companies will tie-up with foreign players to obtain the required
technology.
• ► The potential foreign submarine contenders in the race for the project are
French DCNS “Scorpene,” Russia’s Rubin Amur 1650, the German HDW Type
214 and Spain’s Navantia S-80.
INR530
billion
Goa Shipyard Ltd.
(GSL)
• ► GSL bagged an order to build 12 Mine Counter-Measure Vessels (MCMVs)
for the Indian Navy. It is currently scouting for foreign companies for the
technology transfer required to create these high-tech ships.
• ► It is looking for required technology from foreign countries such as Russia,
Spain, Sweden, Italy and Korea.
INR320
billion
Indian Navy • ► Indian Navy is planning to procure 100 new-generation naval utility helicopters
(NUH) to replace its obsolete fleet of Chetak helicopters.
• ► The possible contenders for the NUH program are AS565 MBe of Airbus, Bell
Helicopters-429 and Super Lynx 300 of AgustaWestland.
• ► The selected foreign helicopter manufacturer will collaborate with private
Indian players such as Tata Advanced Systems, Bharat Forge, Mahindra
Aerospace, Reliance Defence & Aerospace, and L&T to manufacture NUH.
INR120
billion
Indian Air Force (IAF),
Airbus and Tata Sons
• ► India’s Defence Ministry approved the purchase of 56 units of Airbus C295
transport planes to replace IAF’s ageing fleet of Avro aircraft.
• ► Airbus will supply the first 16 units of the C295 planes in “flyaway” condition,
while it will manufacture and assemble the remaining 40 units in India through
partnership with Tata Advanced Systems (TAS).
INR112.2
billion
Indian Army • ► The Indian Army plans to procure six new regiments (108 units) of the
indigenous Pinaka Multi-Launcher Rocket System (MLRS), capable of flattening
a 3.9 sq km area at a range of 40 km in less than a minute.
• ► Being the primary manufacturers of the mobile artillery system, Tata Power’s
Strategic Engineering Division (SED), L&T and state-run Bharat Earth Movers
(BEM) may get a major share of the contract.
INR19.5
billion
L&T • ► L&T own a contract from the Ministry of Defence for the design and
construction of a floating dock for the Indian Navy (FDN) at its Warship Design
Center.
• ► The floating dock will be capable of docking naval ships and submarines during
day and night, and is expected to significantly augment support infrastructure
of the Navy for docking of warships and submarines for repair and refit.
INR4.7
billion
Indian Navy and
Defence Research
and Development
Organisation (DRDO)
• ► DRDO is developing a short-range surface-to-air missile (SRSAM) for the
Indian Navy. The new missile will be canister-based, with a vertically-launched
system suitable for naval ships, which can hide in the ship’s dock and escape
enemy surveillance radars.
NA

21. 21Eye on Defence |
Name of entity Project details Value*
IAF and DRDO • ► The Defence Acquisition Council (DAC) has cleared DRDO’s project to build two
next-generation AWACS (Airborne Warning and Control Systems) to detect
incoming aerial threats such as hostile fighters, drones and cruise missiles
from 400 km distance.
• ► Initially, eight such aircraft will be inducted under this project, of which the first
two will take up to seven years to build, and the remaining six will be ordered
when the project is mid-way.
• ► IAF and DRDO will share the cost on an 80:20 basis.
NA
New projects/investments/
contracts (cont’d.)
*The values of the deals have been converted to Indian Rupees using the conversion rate1US$ = INR60.
Sources:
1. “L&T, Pipavav shortlisted for Submarine project”, The Financial Express, 12 March 2015, via Q-tech Synergy Newsletter
2. “GSL scouting for foreign partner to build MCMV”, The Economic Times, 21 March 2015, via Q-tech Synergy Newsletter
3. “India set to scout for 100 naval choppers”, The Times Of India, 29 April 2015, via Q-tech Synergy Newsletter
4. Niharika Mandhana ,“India Approves Purchase of 56 Airbus C295 Transport Planes”, Dow Jones Top Global Market Stories, 14 May 2015, via
Factiva
5. “Tata Power, L&T to supply mobile artillery system to the Army; contract yet to get defence ministry approval ”, The Economic Times, 1 May
2015, via Q-tech Synergy Newsletter
6. “India developing its own short-range surface-to-air missiles for navy”, DNA, 15 April 2015, via Q-tech Synergy Newsletter
7. “DAC approves to build two AWACS”, The Times Of India, 29 March 2015, via Q-tech Synergy Newsletter
8. “L&T to construct Floating Dock for Indian Navy”, Business Today, 3 June 2015, via Q-tech Synergy Newsletter

22. 22 | Eye on Defence 22Eye on Defence |
Joint ventures and alliances
Name of the
entities
Nature of transaction Value
Hindustan
Aeronautics Limited
(HAL) and Saab
Grintek Defence
• ► HAL signed a deal with South Africa based Saab Grintek Defence for integrated
self-protection systems on the indigenously developed Dhruv Advanced Light
Helicopters.
• ► The integrated self-protection systems (IDAS) will provide timely warnings
against radar, laser and infrared guided threats and will automatically deploy
appropriate countermeasures.
INR4.8
billion
Hindustan Shipyard
Ltd. (HSL),
Visakhapatnam
and Hyundai Heavy
Industries (HHI)
• ► HSL will partner with South Korean major HHI to get high-end technological
assistance in warship construction. This will bring down the time-frame for
construction of warships from five years to two years.
NA
HAL and BAE
Systems
• HAL has signed an MoU with BAE Systems for the up-gradation of Hawk Mk132,
development of combat Hawk for Indian and export markets and maintenance
solutions for supporting Jaguar and Hawk fleet.
NA
Sources:
1. “India signs 80m-dollar defence deal with South African companies”, BBC Monitoring South Asia, 1 April 2015, via Factiva
2. Shishir Gupta, “Make in India: Korean major Hyundai to build warships in India”, Hindustan Times, 20 May 2015, via Factiva
3. “HAL signs MoU with BAE Systems for Hawk Mk132 upgrade”, The Economic Times website, economictimes.indiatimes.com/news/defence/hal-
signs-mou-with-bae-systems-for-hawk-mk132-upgrade/articleshow/47429223.cms, accessed 16 June 2015

23. 23Eye on Defence |
Country-level deals and initiatives
Country Nature of transaction Additional details
France • ► India will purchase 36 Rafale jets from France in
ready to fly condition through a government-to-
government deal worth about US$4billion.
• ► France has offered India to sell these fighter
jets at the price it pays to French defence major
Dassault Aviation to equip its own Air Force.
• ► The price per aircraft not only includes its own
cost but also that for maintenance, training of
pilots and technicians, armaments and spares.
France • ► India and France completed 10-day naval exercise
“Varuna” that saw 12 Rafale fighter jets in action
off the Goa coast, along with a host of naval
assets of both countries.
Israel • ► DRDO is partnering with Israel Aerospace
Industries (IAI) to develop an advanced version of
the Israeli Barak missile system for an estimated
cost of INR90 billion.
• ► The missile system will have a range of 50
kms (31 miles) along with multi-function
surveillance and threat-tracking radar
components.
• ► Once the system is developed by DRDO-IAI,
Hyderabad-based Bharat Dynamics Limited
(BDL) will take charge of the mass production
of the systems.
Russia • ► Russia is offering to lease a Project 971
Shchuka-B submarine to India for a period of 10
years.
• ► The submarine may be either K-322 Kashalot or
any another submarine of the Chakra class.
• ► The submarine will be customized by Russia
based Amur shipyards.
• ► The modernization and testing of the
submarine, and training of the Indian crew will
take three years.
Afghanistan • ► India has delivered three HAL Cheetah helicopters
along with allied equipment to Afghanistan as
part of the defence cooperation between the two
nations.
The US • ► India is expected to sign a US$2.5 billion deal
for 22 AH-64E Apache and 15 CH-47F Chinook
heavy-lift helicopters during the US Defence
Secretary Ashton Carte’s visit.
• ► The Apache deal will be a “hybrid one”, with
one contract to be signed with Boeing for
the helicopter and the other with the US
government for its weapons, radars and
electronic warfare suite.
The US • ► India and the US have framed a new agreement
on defence cooperation under the Defence
Technology and Trade Initiative (DTTI), for co-
development and co-production of unique and
exceptional technologies of mutual interest.
• ► The framework envisages joint development
and manufacture of defence equipment and
technology including jet engines, aircraft
carrier design and construction.
The US • ► DAC has cleared a deal to procure howitzers from
the US through a government-to-government
agreement via Foreign Military Sales (FMS) route.
• ► The deal involves acquisition of 145 pieces of
M777 ultra-light howitzers worth INR29billion
made by BAE Land Systems in the US.

24. 24 | Eye on Defence
Country-level deals and initiatives
(cont’d.)
Country Nature of transaction Additional details
Germany • ► German defence minister, Ursula von der Leyen
met India Defence minister, Manohar Parrikar as
both the ministers called for closer defence ties
between two countries.
• ► Cooperation between the armed forces of the
two countries, Germany’s collaboration in the
“Make in India” initiative in the defence sector
and supply of state-of-the-art equipment/
technology were some of the prominent issues
discussed in the meeting.
• NA
South
Korea
• ► India and South Korea signed seven agreements
to boost bilateral ties.
• ► The agreements cover a number of areas of
mutual interest, including avoidance of double
taxation and formalizing consultations between
the National Security Councils of the two nations.
• ► The agreements will upgrade the strategic
partnership between the two countries and
deepen their cooperation in defence.
Thailand • ► India and Thailand are considering the formation
of a joint production and development venture in
Thailand for the defence sector.
• ► Though the details of the venture have not yet
been finalized, the two parties can start with
manufacturing explosives, small systems and
defence equipment that the Indian Ordnance
Factory Board (OFB) currently manufactures.
Sources:
1. “Indo-French naval exercise ‘Varuna’ begins”, Press Trust Of India, 23 April 2015, via Factiva
2. “France offers 25% discount to India on purchase of 36 Rafale jets”, The Times Of India, 7May 2015, via Factiva, (c) 2015 The Times of India Group
3. “India, Israel rev up defence ties with mega missile deal”, The Times of India, 21 May 2015, via Factiva, © 2015. Bennett, Coleman & Co., Ltd.
4. “Russia ready to lease second submarine to India”, Russia & CIS Business and Financial Newswire, 27 March 2015, via Factiva
5. “India delivers multi-role Cheetah helicopters to Afghanistan”, Pajhwok Afghan News, 24 April 2015, via Factiva
6. “India, US framed new agreement for defense cooperation”, The Economic Times, 13 March 2015, via Q-tech Synergy Newsletter
7. “India, US may sign $2.5 billion deal soon”, The Economic Times, 17April 2015, via Q-tech Synergy Newsletter
8. “Nod to buy 145 howitzers from US”, The Telegraph, 14 May 2015, via Factiva, © 2015. ABP Pvt. Ltd.
9. “Indo- German defense ministers meet next week”, Deccan Herald, 20 May 2015, via Factiva, © The Printers (Mysore) Private Ltd.
10. “India, South Korea ink seven pacts to boost cooperation”, Times Of Oman, 18 May 2015, via Factiva, © 2015 Times Of Oman
11. “India–Thailand likely to form joint venture in defense production”, The Economic Times, 20 March 2015, via Factiva

25. 25Eye on Defence |

26. 26 | Eye on Defence
Industry buzz
India successfully test-fires Astra missile
India successfully test-fired the Astra missile from Su-
30 MKI fighter jet in developmental trials conducted at
the Integrated Test Range in Chandipur, Odisha. This
is the seventh developmental trial of the Astra missile,
which is expected to be inducted by 2016. The missile is
technologically more sophisticated than the nuclear capable
Agni missile series of strategic ballistic missiles, with a
maximum range of 110 km in a head-on chase and 20 km in
a tail chase.
(Source: “Astra missile successfully test-fired again”, The Hindu, 22 May
2015, via Factiva)
India test-fires nuclear-capable Dhanush
ballistic missile
India successfully test-fired its nuclear-capable Dhanush
ballistic missile which is a surface-to-surface naval variant
of India’s indigenously-developed Prithvi missile. It is one of
the five missiles developed by DRDO under the Integrated
Guided Missile Development Program (IGMDP), with a strike
range of 350 km from a naval ship off the Odisha coast. The
induction of the missile is already commenced by the Indian
armed forces.
(Source: “India successfully test-fires nuclear-capable Dhanush ballistic
missile”, The Economic Times, 16 April 2015, via Q-tech Synergy
Newsletter)
Indian Army faces ammunition shortage
According to the CAG report, the Indian Army is facing
ammunition shortage to the extent that the present
ammunition reserves will barely last 20 days of intense
fighting. To be on the safe side, the army needs to build up
their war wastage reserves for 40 days of intense fighting.
The report further states that INR35.7 billion worth of
ammunition is lying in segregated condition after being
involved in accidents, INR16.1 billion worth of ammunition
is rejected by the Army due to defects and INR8.1 billion
worth of ammunition has been declared unserviceable due
to poor quality, while ammunition worth INR21.1 billion is
awaiting repairs.
(Source: “Indian Army facing ammunition shortage”, The Hindustan
Times, 9 May 2015, via Q-tech Synergy Newsletter)
Dhanush artillery gun successfully clears field
trials
Dhanush, a 155 mm, 45-calibre artillery gun, has
successfully cleared its field trials and is ready for
manufacturing. The India’s Ordnance Factory Board (OFB)
has built Dhanush from manufacturing blueprints supplied
to India by the Swedish company Bofors. OFB will likely
receive an order for building 114 Dhanush guns from the
Indian Army, to equip six artillery regiments.
(Source: “Dhanush successfully clears field trials”, Business Standard,
27 April 2015, via Q-tech Synergy Newsletter)
India’s first indigenous aircraft carrier
undocked
India undocked its first indigenously-built aircraft carrier
INS Vikrant at the Cochin Shipyard. The ship will undergo
a series of fitment and trial processes before it is ready for
propulsion and inducted into the Navy. The aircraft carrier is
a modified Kiev-class aircraft carrier, which was purchased
by India from Russia for the Indian Navy in 2013. The
successful completion of the 40,000 ton aircraft carrier puts
India in the elite group of four nations capable of designing
and constructing aircraft carriers - the US, Russia, the UK
and France.
(Source: “India’s first indigenous aircraft carrier INS Vikrant undocked”,
The Economic Times, 10 June 2015, via Q-tech Synergy Newsletter)
INS Vikramaditya to get Air Defence System
soon
The Indian Navy is planning to install an air defence system
on its aircraft carrier INS Vikaramaditya. It will transfer an
Israeli Barak missile system from a Godavari-class ship to
INS Vikramaditya. The aircraft carrier is a modified Kiev-
class aircraft carrier, which was purchased by India from
Russia for the Indian Navy in 2013.
(Source: “INS Vikramaditya to get Air Defence System soon”, Zee News,
16 April 2015, via Q-tech Synergy Newsletter)
India launches the first indigenously-built
Scorpene submarine
After years of prolonged delays, India finally launched the
first indigenously-built Scorpene submarine. After going
through extensive harbor and sea trials, it is expected to
be commissioned in September 2016 at MDL, Mumbai.
Another five submarines will roll out from MDL at intervals
of nine months each after the commissioning of the first
submarine. All the six submarines will be indigenously built
at MDL, Mumbai through technology transfer from French
firm DCNS at the cost of INR235.6 billion.
(Source: “India launches the first indigenously-built Scorpene sub”, The
Times of India, 6 April 2015, via Q-tech Synergy Newsletter)
Navy to launch indigenous destroyer
Indian Navy is planning to launch a new stealth destroyer
INS Visakhapatnam likely to be inducted in 2018. The 7,300
tones INS Visakhapatnam will be the largest destroyer
commissioned by the Indian Navy. A major portion (65%) of
the ship is indigenously built with total cost of the project

27. 27Eye on Defence |
expected to be around INR296billion.
(Source: “Navy to launch indigenous destroyer”, The Hindu, 16 April
2015, via Q-tech Synergy Newsletter)
India applies for membership of Missile
Technology Control Regime
India has applied for the membership of Missile Technology
Control Regime (MTCR), a West-dominated elite club
of 34 countries that controls trade in missile and space
technology. India’s space and missile programs will gain
from the MTCR membership, since it will get access to world-
class technology. The MTCR membership will also allow India
to export its own technology to countries that comply with
the regime.
(Source: “India applies for membership of Missile Technology Control
Regime that controls missile & space tech”, The Economic Times, 11
June 2015, via Q-tech Synergy Newsletter)
MoD to consider Industry suggestions for new
DPP
To simplify the DPP, the MoD has formed a committee
consisting of MoD officials and industry members
representing FICCI, CII and ASSOCHAM, three prominent
industry bodies of India. The Government is brainstorming
on easing the blanket ban on blacklisted firms and
formalizing the engagement of middlemen in procurement.
Furthermore, to make the process of defence procurement
transparent and easy, the new DPP is likely to accommodate
concerns of the indigenous industry players.
(Source: MoD to consider Industry suggestions for new DPP, DNA India,
3 June 2015, via Q-tech Synergy newsletter)
GoI extends industrial license validity
The GoI extended the initial validity of industrial licenses to
seven years from the earlier three years. The license can be
further extended by another three years, giving a decade’s
time for companies to start manufacturing. This step was
taken keeping in mind the long gestation period of defence
contracts.
(Source: “Industrial License validity extended to seven years”, The
Economic Times, 30 April 2015, via Q-tech Synergy Newsletter)’
GoI withdraws duty exemptions in defence
production for DPSUs
To put the Indian private sector and foreign players at
par with the public sector players, the GoI has issued a
notification to withdraw the excise and customs duty
exemptions enjoyed by the Ordnance Factory Board (OFB)
and Defence Public Sector Units (DPSUs) in the defence
sector. The initiative will attract the foreign OEMs to tie up
with private players and on the other hand, it will open up
possibilities for smaller Indian private players who can be
sub suppliers and contractors for larger military contracts.
(“India scraps duty exemptions in defence production for public sector
to attract foreign companies”, The Economic Times, 2 June 2015, via
Q-tech Synergy Newsletter)
Under-utilization of defence budget
In 2014-15, the Defence Ministry utilized only 87.2% of
the revised allocation of INR2.2 trillion, which is the lowest
utilization of the defence budget in the past six years. Last
year, only INR54 billion were spent for procuring new items,
while INR611.5 billion went into paying for previously signed
contracts. This year, INR60.7 billion has been allocated for
new items while INR713.3 billion will go toward already
committed liabilities.
(Source: “Underutilization of defence budget”, The Indian Express, 2
May 2015, via Q-tech Synergy Newsletter)
Delhi and Mumbai to get nuclear missile shield
The GoI is planning to give nuclear missile shield cover
to Delhi and Mumbai. Initially, it will place two long-range
missile-tracking radars called Swordfish developed with Israeli
assistance in Delhi. When completed, the shield will be able to
intercept missiles fired from as far as 5,000 km away. Mumbai
will be the next Indian city to get covered by these radars. The
government has also cleared a project to approve setting up
of a US$1 billion facility in DRDO to manufacture vital seeker
systems, which direct missiles in the final phase of targeting.
(Source: “Delhi, Mumbai to get nuclear missile shield”, The Economic
Times, 4 April 2015, via Q-tech Synergy Newsletter)
DRDO’s new device to track snipers
DRDO has developed a device, the Optical Target Locater
(OTL) to identify snipers. The device can detect passive
or active optical threats like telescopes, binoculars or the
telescopic sight of a sniper rifle. It is a laser-based portable
surveillance device which functions on the cat’s eye effect.
It releases a laser beam, which scans a designated area and
as soon as it hits any optical target, back-scattered energy is
released and the target is detected.
(Source: “DRDO’s new device to track snipers”, The Times of India, 14
April 2015, via Q-tech Synergy Newsletter)
Adani group to foray into defence
manufacturing
The Adani group has incorporated a new company named
Adani Defence Systems and Technologies Ltd (ADST), to
enter defence manufacturing in India. ADST will primarily
focus on manufacturing helicopters for the GoI. The
company’s decision is in line with the “Make in India” initiative
to encourage private participation in defence manufacturing.
(Source: “Adani to foray into defence manufacturing”, The Times of
India, 19 May 2015, via Factiva)

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28 | Eye on Defence

29. Why choose Team EY?
Unique Team Experience Offset Structuring Industrial Connects End to End Solutions
• Team member
was a part of the
team that wrote
the Indian Defence
Offset policy in
2006.
• Team member
founded the DOFA.
• Team member has
written a complete
book on Offsets with
the CII.
• Offset Structuring
worth US$ 3.7
Bn executed
successfully.
• Total experience of
66 man years in the
Armed Forces.
• MoD experience of
14 man years.
• Team has members
from the Auto
practice-India’s
only proven
manufacturing
competence
• We have offices
in Bangalore;
Pune Hyderabad
& Chennai where
these manufacturing
and IT capabilities
reside
• Industrial License
Application
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• Due-diligence
services
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offset contracts
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compliant Offset
Schedule
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progress report
Unparalleled Support & Advantage for OEM’s & Indian Companies
29Eye on Defence |

30. 30 | Eye on Defence
Services offering – Tax & Regulatory
Contract
negotiation stage
Post contract
signing support
Other
Compliance
and Advisory
Pre bid stage1 2 3 4
► Review the clauses of RFP in
order to highlight the
clauses/terms from a tax &
regulatory perspective.
► Suggest alternative
approaches where necessary
► Advising on tax issues
Association of Persons
('AOP') exposure under the
consortium model and
suggesting adequate
safeguards.
► Identification of a suitable
business model.
► Formulate appropriate tax
positions
► Back End advise on tax and
regulatory clauses in the
bid negotiation with the
objective of optimizing the
tax & regulatory
implications.
► Responding to queries
pertaining to any tax or
regulatory issues which
may arise during the
discussion stage
► Assistance in set up
of the agreed upon
business model.
► Advise on
subcontracting/
local purchase
arrangements from
tax and commercial
perspective
► Formulate
appropriate tax
positions
► Plan for advance
ruling for upfront
certainty/ clarity
ServicesOffering
Support
atevery
stage Contracting Process
► Corporate tax and
indirect tax
compliance
► Accounting services
► Background check
(Fraud investigation)
on viability of the
chosen Indian Offset
Partners (IOP’s)
► Foreign Investment
Promotion Board
(FIPB) & Industrial
License (IL)
application and
clarifications for IOPs
Importance
► Develop certainty with
respect to impact and
incidence of direct and
indirect taxes in India
► Establishment of a tax
efficient and regulatory
compliant structure in
India
► Compliance with ever
evolving tax and
regulatory regime in India
► Upfront identification of tax
and regulatory implications
under the RFP
Services offering - Defence Offset
Bid Stage Contract
negotiation stage
Post contract
signing support
Pre bid stage
1 2 3 4
Offset process
► Help evolve an
understanding of the offset
process and stakeholders
Indian offset
partners(IOPs)
► Identification of IOPs (M&A
/ JV / Licensed
Manufacture / Sourcing)
► Clarification from
DIPP/FIPB/MoD regarding
their regulatory status
Support services
► Industrial Licensing for
IOPs
► IOPs financing
► Joint venture structuring
Offset Proposal
► Identification of methods
of offset discharge
► Structuring/vetting of
Technical and commercial
offset proposals
► Support in answering the
queries of the MoD
Indian offset
partners(IOPs)
► Structuring contractual
arrangements with IOPs
► Valuation of offset
attributable
► Financial & Background
due diligence of IOPs
► Continuous support
through on call
advisory
► Support in
preparation of
appropriate
responses to MoD
queries
► Identification of
stand by IOPs in
case of removal of
existing ones
► Any other support
as maybe required.
Servicesoffering
Supportatevery
stage
Contracting process
► Support in compiling
documentation
required for offset
discharge
► Support in
preparation of
quarterly / half
yearly reports on
fulfillment of offset
obligations.
Importance
► To ensure a suitable
Technical and commercial
offset plan that should find
favour with the TOEC and the
CNC.
► Support in getting the
technical offset
proposal approved in
time so that it does not
obstruct main contract
signing
► Continued support for
offset execution to avoid
penalties and loss of faith
with the MoD
► Evolve understanding of
offset process amongst the
core team for optimal
planning
► Identification of eligible and
viable IOPs who can sustain
through the duration of the
offset program
► Planning for submission
► Identifying the right
partners and
methodologies
► Getting the
documents right for
submission
► Building the right
offset program
► Getting the
optimum
economic value
for offsets
► Documentation
of offset
execution

31. Our offices in India
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