Eye on Defence April 2016

Contents title

Contents subjects

April 2016 Eye on Defence

Dear readers,

Electronics systems form an important part of almost all defence systems and are currently built into nearly every weapon system and piece of equipment held by defence forces. Electronics provide capabilities that are critical to defence requirements and the effectiveness & lethality of weapons systems are dependent upon electronics subsystems they employ. In recent times the Indian industry has grown progressively in the electronics domain and the strategic defence electronics is likely to witness high growth over the next

several years. In the first article of our issue, we provide an overview of the market and its segments as well as highlight upcoming opportunities and its challenges.

With the release of defence budget 2016–17 along with the Union budget in February, our second article draws out comparisons from last years’ budget for the three forces in terms of capital acquisition and take a closer look at the distribution of the entire budget into various demand numbers, which have been altered and rearranged from this year onward.

Our third article is specific to the indirect taxes that have been proposed in the new defence budget. Overall the proposals that have been introduced seek to establish a balanced indirect tax system by rationalizing the exemptions on imports coupled with incentivizing the domestic industry, both for manufacturing as well as services sectors. Although the industry feels that few more robust measures focused on providing an impetus to the aerospace and defence sector could have been introduced. Through this article we look to decipher the changes within the customs duty and proposals suggested within the domain of aviation sector like taxes for MRO related activities, fuel charges and development of new commercial airports.

By end-March the defence focus shifted to Goa as Defexpo 2016 moved outside of the capital for the first time. In this issue we have attached the list of the registered exhibitors.

Among the regular sections, we have industrial license applicants, RFIs/RFPs released, new projects and investments, joint ventures 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 in this regard.

K. Ganesh Raj Partner and Leader

Contents

Strategic defence electronics manufacturing ecosystem 2

Defence Budget 2016-17 and resonance with ”Make in India” 10

Union Budget 2016: deciphering key indirect tax proposals for the A&D sector 13

List of registered exhibitors at Defexpo 2016 16

Request for Information (December–January 2016) 22

Request for proposal (December–January 2016) 23

List of Industrial Licenses (ILs) filed for January 2016–February 2016 26

New projects /investments/contracts 28

JVs and alliances 30

Country-level deals and initiatives 31

Industry buzz 33

2 | Eye on Defence

The Indian Electronics Systems Design and Manufacturing (ESDM) industry sector comprises electronic products, electronic components, semiconductor design and electronics manufacturing services (EMS). India imports 65% of its electronic products and accounts for around 27% of the country’s trade deficit. In case the trend continues like in the past, the country’s electronics import bill may well surpass its oil import expenses by 2020. The industry, worth around US$125 billion in 2014, is expected to grow to US$400 billion by 2020 and the estimated domestic production could only rise to US$104 billion. The segment spread is as under:

Source: Meeting of India-EU 7th Joint WG-2012 on Information Society CMAI India and Q-Tech

Government of India (GoI) launched the National Policy on Electronics 2012 (NPE 12) with the vision to make India a globally competitive destination for Electronics System

Strategic defence electronics manufacturing ecosystem

Design and Manufacturing (ESDM). Some visible indicators from recent data (in January 2016) suggests that electronic imports declined by 2.2% to US$3.2 billion, while electronic exports rose 7.8% to US$0.5 billion. Electronic exports turning positive in the recent past is likely to change the dynamics of India’s manufacturing and international trade. Increase in exports and decline in imports of electronic items is an indicator of the changing dynamics.

Recently the Department of Electronics and Information Technology (DietY) has joined hands with Canbank Venture Capital fund to launch Electronic Development Fund (EDF) in Mumbai. EDF is an initiative of Department of Information Technology to set up a “fund of funds” to participate in “daughter funds”. The daughter funds will, in turn, provide risk capital to companies developing new technologies in the area of electronics, nano-electronics and IT. The supported funds will promote innovation, R&D and product development within the country in the specified fields of electronics, nano-electronics and IT. They will also support acquisition of foreign companies and technologies for products imported in India in large volumes. Although the Government has laid down the policies for attracting manufacturers and is making it easy to do business in India, the private sector needs to be convinced now to start manufacturing in the country.

Strategic electronics systems Electronics systems form an important part of almost all defence systems and are built into nearly every weapon systems and piece of equipment held by the defence forces. Electronics provide capabilities that are critical to defence requirements and the effectiveness and lethality of weapons systems are dependent upon the electronics subsystems they employ. Combined with “Network Enabled or Network Centric Warfare” (NEW), it will continue to grow in importance in the future, enabling far-reaching advances in military capability and efficiency. Indian defence electronics industry has shown an uptrend during the Eleventh plan period. The Defence Electronics sector is likely to see a high growth during the next few plan periods. The major products and systems planned for induction by the Indian MoD during Twelfth and Thirteenth plan are:

ESDM Projection Segment , 2020E

Semiconductor design

15% Hi-Tech mnfg.6%Electronics Components

1%

Electronics Mfr. Services

1%IT Systems and

hardware14%

Telecom products and equipments

37%

Consumer electronics

4%

Others2%

Exports20%

Indian Demand Projection: ESDM

45

125

400

2009 2014 2020

$ U

SD B

illio

n

3Eye on Defence |

Source

Checklist1. Use group selection tool to delete unwanted outlines2. Resize to fit margin3. Use EY colors on graphs4 Delete All lines except X and Y axis5. Select a text thn select all same appearance give font size 8 light -20 06. Give heading point size 9 and bold7. Text color absolute black8. Heading will be 9 bold9. Check font options to show 100%10. Text breaks sometimes so copypaste11. Check gap between heading and graph keep one in all12. Keep stroke width 0.5 and stroke color consistent 70% blackmake everything CMYK colorCOMS EW SIGNIT

Platform Electronics

Data linksSeeker

Electronics

13750

11000

16500

16500

16500

13750

27500

16500 22000

27500

2750022000

1650011000 11000

2750016500 16500

0

10000

20000

30000

40000

50000

60000

70000

80000

INR

Cro

res

Air Force Naval Systems Land Systems

• Battlefield management systems

• Future infantry soldier as a system

• Long range surveillance radars, weapon locating radars, mountain radars

• Tactical communication systems

• Softwar defined radios

• EW systems for different terrains and aircraft

• Unmanned aerial vehicles and aerostats

• Long range electro optical surveillance systems

• Thermal imager based sights for tanks and weapons

• Image intensifier-based passive night vision devices

• Weapon and missile systems

• Satellite communication and homeland security solutions

• Electrical systems that comprise components such as fuel systems, fire prevention systems, connectors and electrical wiring, etc.

• Instrumentation and display systems comprising components such as fly-by-wire and autopilot systems, aircraft data display systems, g-load, side slip sensors, temperature and pressure sensors, etc.

• Radio and communication systems

• Platform electronics/avionics systems/underwater electronics

• Communication equipment

• Tools, testers and ground equipment

High levels of electronics such as avionics, airborne systems, military communication systems, UAVs, land system electronics, naval system electronics, electronic warfare systems, C4ISR and weapon and missile system electronics are emerging as key focus area for the defence electronics industry. The table below throws light on the sub-segments of the defence electronics market for the period 2015–2027.

Source: Q-tech Synergy

Defence Electronics Market - Sub - System Segment - Wise

4 | Eye on Defence

Source: Q-tech Synergy

Assumptions: In Electronics & Information Networks Programs, the Electronics part is around 50%–60% of overall cost; while Platform Electronics is around 25% of overall platform cost. The above data is based on proposed new acquisition (capital procurement) and does not include the replacement due under revenue procurement.

Some emerging opportunity: Electronics & Information Networks ProgramConsidering the system of systems stand-alone level, the consolidated INR1000 billion (US$14.4 billion) opportunity is congregated around major developmental programs related to information systems and battle field transparency for the Indian Army such as TCS and BMS (refer table)

Defence Service

Project Approx. cost in US$ billion

Project cost Electronics systems share

Indian Army BMS 7.5 5.5

TCS 1.5 5.5

NFS 3 1.5

IACCS 2.5 1.5

CIDSS-I 6.5 0.2

CIDSS-II 7.5 0.1

ACCCS 0.3 0.2

ADC&R 0.1 0.1

BSS 0.1 0.1

CICP 0 0

ASCON 0.1 0.05

Sub Total 29.1 14.8

Indian Navy CSN 2.5 0.5

Sub Total 2.5 0.5

Indian Air Force

AFNET 0.3 0.2

ODL 0.003 0.002

Sub Total 0.3 0.2

Three Defence Services

SATCOM 0.1 0.1

DCN 0.1 0.1

Sub Total 0.2 0.2

Grand Total 32.1 15.7

Aero Systems29%

Land Systems24%

Naval Systems47%

Defence Electronics Market - Segment - Wise

Platform Electronics

22%

Data Links18%

Seeker Electronics16%

SIGNIT15%

EW12%

COMS17%

5Eye on Defence |

Sub-system segmentThe land systems opportunity for Indian companies is around projects such as the FICV, FRCV, Artillery, AD Artillery and launcher programs. The naval opportunity is around platform programs of conventional submarines, frigates, aircraft carriers and support vehicles. In the Air Force, the market could open up around supplies to fighter and transport projects. Platform Electronics has an approximate share of 25%–30% share in the overall platform cost.

Capability gapThe design and development by DRDO laboratories is in various facets of electronics and its applications besides developing main combat platforms. Therefore, from the design and development of solid state material, devices, microwave tubes, microprocessors, communication systems, command and control systems, radars, electronic warfare systems and electro-optical systems, to advanced computing, artificial intelligence and robotics — DRDO’s R&D activities covers it all, besides developing main platforms such as MBT-Mark-II, Rustom-II, LCA Mark-II, Long Range Missiles, etc. The presence of a single agency has created a capability gap in the private sector. The key capability gaps for domestic players in military communication systems lie in the areas of IP radios/software defined radios, military grade GPS, encryption and secrecy modules, integrated CMS solutions, 3DTC radars, target acquisition systems, battery backup systems, field wireless systems and support of LTE while adhering to the defence services security protocols and core electronics technologies. In terms of core technologies, the key gaps are in the areas of Field Programmable Gated Array (FPGA) technology and micro-electromechanical systems (MEMS) design and manufacturing; miniaturization, ruggedization and wireless design of existing equipment are three broad areas of focus in terms of modification of existing devices and systems. In terms of software engineering, cyber and network security solutions, algorithms and data security and software protocol stacks emerge as product gaps.

Indian industry participation Manufacturing of defence products in India was opened up to private and foreign players in 2001. Till then, only defence PSUs such as Hindustan Aeronautics (HAL), Bharat Electronics Limited (BEL), etc., manufactured defence electronics equipment in the country. The Government sector relied mainly on assembling the imported kits and bit of in-house manufacturing with little outsourcing to the private sector. The ever-growing potential of electronics systems as a force-multiplier for the military has been recognized by the private firms as well. To begin with they have played a very effective role with its expertise in electronics, communication and IT. The Indian private sector has the necessary licenses for design, development and production of EW systems and also demonstrated indigenous capability in most of the domains, which has been verified during NCNC evaluations. They also have flexibility to leverage the eco system to obtain comprehensive ToT and IPRs for imported sub-systems, which will lead to self-reliance. Some of the firms active in the domain are Tata Power SED, Larsen & Toubro, Alpha Design, Axis Technologies, etc., and their estimated share is just 5% of the defence equipment market. This domain needs companies that are into design, custom-built products, contract manufacturing, component manufacturing, systems integration, etc. While in 2010, 92% of the private sector’s orders that came to India were for build-to-print, this figure has dropped to 80% in 2014. Indian manufacturers have now started building capabilities in the “build to specifications” category and have taken big strides forward, technologically, in the last few years and can now match international standards.

Private players have been prime bidders even in Buy (Global) EW tenders and are willing to invest stand alone or as Consortia modes. They can provide Lifecycle Product Support across India. L&T & TATA Power SED have been identified by DRDO as candidates for Engg & Life cycle Support Agency (ELSA) for AEW&C project, besides having the ability to take on Annual Maintenance Contract.

6 | Eye on Defence

7Eye on Defence |

A list of all RFIs related to strategic electronics for the year 2015 have been tabulated below

Date of Issue RFI Details

Communication

25 Aug 2015 VHF Radio Sets for Pechora Fleet for IAF

4 Sep 2015 Light Weight Man Portable High Frequency sets for IAF

13 Oct 2015 High Capacity Radio Relay (HCRR) Minimum 8/34 MBPS RR for IA

10 Nov 2015 High Frequency Sets, Approx. 100/200/300; for IAF

22 Dec 2015 Mobile Satcom Tropo Terminal (MSTT) for IAF

6 Jan 2016 Helicopter Satellite Tracking System for IAF

Radars

8 Jan 2015 Army Wide Area Network (AWAN) Phase-II Main System Less Encryption System for IA

7 April 2015 Low Level Light Weight Radar Mark-II for IA

30 Dec 2015 Aerostat Systems for IAF

EW Systems

16 Sep 2015 Integrated EW Suite For Mi-17 V5, for IAF

Surveillance Systems

9 Feb 2015 Flexible Surveillance Device (FSD) for IA

20 Oct 15 Laser Range Finder for IAF

8 Feb 2016 Electro Optical Pods for Reconnaissance and Observation Flights of Army Aviation for IA

Satellite Communication

19 Feb 15 Static and Mobile Photogrammetry and GIS Systems (SMPGIS) for IA

Night Vision

14 Feb 2015 Night Sight for 5.56 mm Galil Assault Rifle for IA

14 Feb 2015 Reflex Sight for 5.56 mm Tavor Assault Rifle for IA; Qty 200

10 Aug 2015 Night Sight for 84mm RL (TI) for IA

22 Jan 2016 Night Vision Devices for IAF; Qty 100

Challenges Some of the challenges faced by the industry for realization of this opportunity are:

• Restricted technologies: Restricted access to defence technology, particularly in areas of electronics and communication, missiles and smart ammunition — which is closely guarded by firms and nations. The lack of access to critical technologies, many of which are of dual use, delays projects.

• High R&D cost: Prohibitive cost of R&D for development of cutting edge technologies, which is further accentuated by the lack of synergy between the institutions working in this area. Indian industry’s

emphasis on R&D has been rather low with most companies spending only around 2% of their sales revenue on R&D.

• Monopsonic defence market: The Defence industry being monopsonic in nature, companies find it difficult to commit adequate funds for R&D in the absence of guaranteed business at the end of the development cycle.

• Low volumes of high technology equipment: Low volumes of high technology equipment are unattractive to qualified vendors. Absence of consortium approach between the designer, manufacturer and the vendor.

• Relatively limited local production base leading to significant reliance on imports

8 | Eye on Defence

Way aheadOver the years, Indian manufacturers have built capabilities, expertise and capacities to manufacture electronic systems; however, their strengths and abilities have remained under-utilized due to the regulatory, operational and tax structure issues. To build a complete ecosystem with a robust infrastructure, supply chain and a favorable regulatory environment is essential. Toward that, campaigns such as Make-in-India and ease of doing business in India, which aim to create an investment-friendly environment and strengthen our production potential, have set the right tone.

The indigenous design, development and manufacture of defence equipment, is undergoing a paradigm shift with the entry of private players. To overcome the gaps in the desired number and the existing force level, time bound manufacturing and induction is inescapable. The following

key issues need to be addressed through the inclusive provisions in Defence Electronics Policy (DEP) to overcome the challenges:

• Provide private sector the visibility of government procurement plans focused on technology.

• Import the component; the Indian industry’s ability to develop system-level competence, i.e., graduation from know-how to know-why will value add using ”commercially off the shelf” technologies/ products and development of defence systems from them for the industry.

• Leveraging large developmental projects to ensure maximization of indigenization potential, especially at component levels thereby affecting SMEs. Make project focus will also ensure development of key “system of system” integration competence, which the Indian industry has already demonstrated across major programs.

• The defence electronics industry should be provided with enablers such as easy and more price efficient access to financing and infrastructure, multipliers to incentivize first-time exports or multipliers where global single source competencies are created.

• Foreign OEMs, which are willing to relocate global A&D electronics manufacturing to India through partnerships with local players should be extended all benefits including those of preferential market access for defence procurement. This is critical for all global electronics players as the home market is often the basis of building a business case, which is then substantiated through international market access.

• Defence electronics today is not really codified at the ITC-HS level as a distinct category and hence, there are operational issues that emerge. There is a need to detail out defence electronics from chapter 85 of ITC-HS as well as create a simple procedure for export of such products by populating Category 6 of SCOMET guidelines.

• Develop a talent pool through specialized courses that focus on defence so that there is more awareness of defence as a career opportunity.

• Some other measures such as resolving duty differential anomalies, giving a boost to domestic production and exports, tax exemptions and rationalization to improve competitiveness.

Industry structureThe strategic electronics industry comprises lead system integrators and component and sub-system manufacturers (tier-II and tier-I). To develop desired capabilities, India needs to create supply chain established according to global model. Till now, the Electronics system manufacturing in India has been assembling imported sub systems, now CKD kits are being imported and assembled. However, now Indian components ecosystem is getting ready to move to local sourcing of components.

Tier 1 and Tier 2 Partially Capable

Component Manufacturers Yet to pick up

Design Product providing and testing Technology Adoption Cost Leadership

Design Product Providing / Testing Cost Leadership

OEM CapableBrand and Time-to-Test Design Product providing and testing Integration and Supply chain Sustainment and Upgrade Ability to Finance product and Supply chain

Capability Level

In line with the global model, in India also structural shift has to take place, where the integrator does ~20% of value add and for the rest it relies on indigenous supply chain.

9Eye on Defence |

The current Government stresses on self-reliance in defence and the need for indigenous design, development and manufacture of defence equipment. With the country’s defence outlay going up by around 10% every year, the defence electronics sector has undergone a paradigm shift with the entry of private players into a traditionally “public sector only” domain. Although the Government is the sole buyer and market marker for defence electronics, the segment has come a long way due to the participation of private players along with public sector units, even though a major part of the market is yet to be explored in the country. Several key areas need to be strengthened for each part of the supply chain. The way forward for electronics in this segment varies by the role a company plays. System integrators/OEMs will need to create a viable supply chain. Indian companies will need to evolve models that rest on a triad of technology, applications and production, in a manner that engages with DRDO, DPSUs and other private players to be successful. The initiatives need to be supported with a complete ecosystem that promotes growth. Given the right environment to grow, the domestic electronic manufacturing industry can surely play an increasingly important role.

References• “Policies”, DeITY website, www.deity.gov.in/esdm/

policies, accessed 1 Mar 2016

• “Make in India for Aerospace& Defence electronics market -2 Lakh Cr INR in coming five years”, The ELE Times, 24 September 2014, via Factiva

• “Has India’s electronic manufacturing turned a corner,” The Live Mint, 20 Mar 2015, via Factiva

• “DeitY Will Back Startup Industry, Will Soon Launch Electronic Development Fund For Startup”, The Tech Story, 16 February 2016, via Factiva

OverviewIndia’s Union Budget for the fiscal year 2016—17, was presented on 29 February 2016. This was the second full budget of the Narendra Modi-led government. Unlike all previous budgets, the Finance Minister kept the defence budget out of his speech and there was absolutely no mention of any defence allocation throughout his budget presentation.

This defence budget can be viewed through two different lenses and can therefore, reap two different interpretations of budget figures. Due to the significant depreciation of INR against US$ in this past year, there is a marked difference in

how the numbers will be read for either currencies. In terms of US$, the overall defence budget has reduced by 9.28% as compared to the Budgetary Estimate (BE) of 2015–16 and reduced by 0.36% as compared to the Revised Estimate (RE) of 2015–16. On the other hand in INR terms there has been an increase of 1% over the BE of last year and the increase is in excess of 10% over the RE of the same period. The US$ has appreciated from ~INR62 to ~INR69 during the last year. This increase of ~11% is the main reason why the defence budget is showing an overall decline.

The figures for 2015–16 have been calculated at INR62 whereas the figures for 2016–17 have been calculated at INR69.

Total Defence expenditure (US $ billion)

Defence Budget 2016-17 and resonance with ”Make in India”

Capital expenditure (US $ billion)

15.2613.13 12.51

2015-16 (Budget)

2015-16 (Revised)

2016-17 (Budget)

Revenue expenditure (US $ billion)

24.54

23.10

23.59

2015-16 (Budget)

2015-16 (Revised)

2016-17 (Budget)

39.79

36.23 36.10

2015-16 (Budget)

2015-16 (Revised)

2016-17 (Budget)

10 | Eye on Defence

11Eye on Defence |

Changes in accounting One of the major deviations of this years’ budget from previous years is the allocation of funds under various demand numbers. Previously, the entire defence allocation was broken down into eight demand numbers whereas these

On capital expenditureThe budgetary allocation toward capital expenditure, which primarily caters to fresh procurement programs of military hardware; both platforms and infrastructure, as well as the development and modernization effort of the DRDO and the OFB’s has been kept at US$12.51 billion. The capital allocation has reduced significantly (17.98%) as compared to the BE of 2015–16 and there has been a minor reduction as compared to the RE of the same period. This can be attributed to the fact that an excess of US$2 billion was un-spent from last year’s BE.

The decline in capital budget, when compared to the BE of the previous year, is most significant for the Navy, Air Force and the DRDO.

When we compare the Capital budget BE for 2016–17 with the RE for the previous year, the Army and the Navy actually have more or less remained flat whereas there is a double digit reduction for the Air Force.

The decline in the Air Force’s budget could lead to delays for some of the programs that are anticipated to be signed this year. These include, the Rafale (Dassault Aviation), Aerial Re-fueler (Airbus is L1); repeat order for two AWACS from Israel and the Jaguar re-engine program (Honeywell). On the other hand, the Army’s budget has managed to remain constant and this could bode well for the M777 (FMS- BAE); and the RSH (Ka-226) programs.

demand numbers have now been consolidated into four. Such alterations in fund allocations have further troubled the analysts to undertake a real assessment of the defence budget this time. The table below briefly explains the old and new break up of demand numbers.

Old demand number New demand number % change over BE 15-16

21 Ministry of Defence 20 -

22 Defence Pensions 21 51.07

23 Defence Services – Army

22

9.19

24 Defence Services – Navy 12.23

25 Defence Services – Air Force 2.85

26 Defence Ordnance Factories

Part of 20

-57.78

27 Defence Services - Research and Development

2.40

28 Capital Outlay on Defence Services

23 -8.72

On revenue expenditureRevenue expenditure includes budget for pay and allowances, rations, clothing, stocking of spares, petrol, oil and lubricants, maintenance works, etc. In the budget it has shown a decline of 3.87% when compared to the BE and an increase of 2.10% when compared to the RE of 2015–16.

This increase, when compared to the RE of the previous year, is due to the fact that approximately US$1.5 billion remained unspent from the revenue budget.

The Air Force has seen the largest (single digit) decline in its revenue budget when compared to the BE of last year. The Navy has seen the largest (single digit) increase in its revenue budget when compared to the RE of the year.

Utilization of previous years’ budgetAnother key point observed through the budget numbers is the non-utilization of the funds allocated under capital budget resulting in withdrawal of the remainder back to the ministry of finance. The capital budget comprises of parts — first part is modernization of the three services and second includes funds for land, capital works, the Defence Research and Development Organization (DRDO), ordnance factories, etc.

12 | Eye on Defence

Modernization budget is primarily utilized for the “committed liabilities”, i.e., milestone-related stage payment due in respect of contracts signed in the past. Underutilization of the capital budget directly signifies the underutilization of the payment of “committed liabilities”. This indicates that for the various defence procurement programs the deliveries/stage payment milestones were not achieved and the money allotted for that has now been surrendered and is no more part of the defence budget.

ConclusionA series of industry friendly steps, increase in FDI, acceptance of key defence programs and an overall focus on “Make in India” held maximum defence limelight in the financial year 2015–16. From the defence budget for 2016–17 the industry was anticipating large funds earmarked for acquisition programs as well as toward implementation of “Make in India” plans. Only time will tell how best this budget will support and drive the defence requirements of a country that needs to strengthen its defence quickly.

Source:

‘Complete budget’, India Budget website, http://indiabudget.nic.in/, accessed on 1 Mar 2016

‘Union Budget’, IDSA website, http://www.idsa.in/idsacomments/union-budget-2016-17-defence-budget_vkausal_010316, accessed 1 March 2016

13Eye on Defence |

On 29 February 2016, the Union Finance Minister, Mr. Arun Jaitley presented the Union Budget 2016–17 on a positive note that the economy is recovering. The FM’s budget proposals had a transformative agenda built on nine distinct pillars of agriculture welfare, rural sector, social sector, education, skills and job creation, infrastructure and investment, financial sector reforms, governance and ease of doing business, fiscal discipline and tax reforms.

The budget contained several proposals introduced with an intent to boost investment and economic growth. It also aimed to provide relief to small taxpayers with measures to boost growth and employment generation, incentivize domestic value addition, reduce litigation and provide certainty, and for simplification and rationalization of taxation.

Defence sector: promoting “Make in India” While India is one of the world’s largest spenders on defence, with an estimated expenditure of almost more than 2% of its total GDP, the country has remained largely dependent on imported defence equipment. The domestic manufacturing base for the defence industry has a very small footprint with insignificant investments been made till date toward development and manufacture of state-of-the-art equipment.

The proposal to withdraw existing Customs duty exemptions on import of certain goods for defence purposes from 1 April 2016, is primarily aimed to reduce the excessive dependence on imports and incentivize local manufacturers to undertake manufacture of goods, further bolstering the “Make in India” initiative.

Prior to announcement of the Union Budget for 2016-2017, there was an exemption from the Customs duty on import of aircrafts, aircraft parts, aircraft engine arms, ammunitions, radars, torpedoes, spares etc. by the Government of India or State Governments. Further, on import of such goods by contractors of the Government of India, PSUs of the Central Government or the State Government and sub-contractor of such PSUs, only Additional duty of customs (‘CVD’) and Special additional customs duty (‘SACD’) were payable, i.e., Basic Custom Duty (‘BCD’) was exempt.

A similar exemption from BCD was also available for machinery, equipment, components, spares etc. required for construction of or fitment to ships of the Indian Navy or the Coast Guard when imported by person authorised

Union Budget 2016: deciphering key indirect tax proposals for the A&D sector

by the Government of India or goods shipped on the order of a Government Department, i.e., only CVD and SACD was payable. Further, in case of import of such goods by the Government of India, no Customs Duty was payable.

Vide amendment ushered in the Union Budget 2016-2017, the exemption from Customs Duty on the import of aircrafts, aircraft parts, aircraft engine arms, ammunitions, radars, torpedoes, spares etc. by the Government, their PSUs and/ or their contractors, and on import of machinery, equipment, components, spares etc. required for construction of or fitment to ships of Indian Navy or Coast Guard by the Government of India, Government Department or any other authorised person, has been withdrawn.

With the aforesaid change, the cost to be incurred in procurement of such goods imported by the Government of India or State Governments, contractors of the Government of India, PSUs of the Central Government or the State Government and subcontractor of such PSUs or a person authorised by the Government of India or goods shipped on an order of a Government Department, as the case may be, would increase by the quantum of BCD applicable on such goods, which could range from 5 to 10 percent on an average.

Further, certain practical issues may also emanate while implementing the amendments.

For example, the removal of exemption from Customs Duty is effective from 1 April 2016. Given that till date, there was a specific exemption from the BCD (which is non creditable tax), and the other taxes (such as CVD and SAD) are creditable taxes, in case of ongoing defence contracts, there is a likelihood that the parties to the contract may not have specified the party who would bear the incidence of the taxes in case of a change in duty rates. By virtue of this increase in non-creditable duty, the tax cost on the contract would increase, which could necessitate review of the tax clauses of the contract to ascertain as to who shall bear the escalation in project cost.

Similarly, where contract negotiations may have been going on currently, the increase in Customs duty cost may require the parties to go back to the drawing board to discuss pricing.

Although the intention is clearly to promote “Make in India”, in the short term, the recent budget amendments may not prove very fruitful given the nascent domestic manufacturing base and use of outdated technology by domestic players; it is likely that imports will continue in the same manner as present, albeit with a higher Customs duty cost now.

14 | Eye on Defence

Aviation sector: taking the industry to new heights India’s civil aviation industry is on a high-growth trajectory. The country aims to become the third-largest aviation market by 2020 and the largest by 2030. The Civil Aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity. India is the ninth-largest civil aviation market in the world, with a market size of around US$16 billion. Government agencies project that around 500 brownfield and greenfield airports will be required by 2020.1

In view of the growing importance of the Indian aviation market, the FM announced a slew of indirect tax measures to provide an impetus to the sector, including the maintenance, repair and overhauling (MRO) operators.

MROPrior to the Budget 2016, import/domestic purchase of tools and tool kits by MROs for the maintenance of aircraft was subject to Custom duty/Excise duty and accordingly, the incidence of indirect taxes on procurement of such equipment was high.

Vide the Union Budget 2016–17, the Custom Duty/Excise duty leviable on such tools and tool kits imported for maintenance, repair and overhauling of aircraft has been done away with.

As a result, the cost of procurement for MROs from a tax perspective will reduce irrespective of whether the same is imported from anywhere outside India or procured domestically in India.

Furthermore, the restriction on the period for utilization of duty free parts imported for the maintenance, repair and overhauling of aircraft (which existed prior to Budget 2016) has been done away with. This will be a relief to importers who were unable to fulfil the said condition of using the parts within the designated period.

Moreover, the foreign aircraft, which were neither registered nor intended to be registered in India, when brought to India for maintenance, repair or overhauling, were exempt from payment of BCD, provided the said aircraft removed

from India within 60 days. This time limit of stay has been extended from the existing 60 days to 6 months, provided during the stay period of the aircraft in India; the same should not ply for any commercial flights in India.

Some of the above have been long-standing demands of the Indian MRO operators, and the amendments are been hailed as a welcome move.

FuelVide Budget 2016, the rate of Excise Duty on Aviation Turbine Fuel has been increased from 8% to 14%. However, in case of Aviation Turbine Fuel manufactured by an assesse for supply to regional commercial scheme airports, the rate of Excise Duty applicable will remain at 8%.

While the move has been largely seen as a dampener, the industry is likely to pass on such cost to passengers instead of absorbing the same.

Construction of new airportsService tax, which is now effectively levied at 14.5% (proposed to increase to 15% with the proposed introduction of Krishi Kalyan Cess at the rate of 0.5% with effect from 1 June 2016) constitutes a major cost for the aviation sector.

While historically, services provided by way of construction, erection, commissioning or installation of original works pertaining to an airport have been exempted from Service tax, such exemption was withdrawn suddenly with effect from 1 April 2015.

However, given the large number of airports under construction/major renovation, many of them with private participation, it appears that the Government has had a rethink on the withdrawal of the said exemption at least for projects that were already underway in 2015.

Accordingly, the Union Budget 2016 has retrospectively exempted execution of such works contract (i.e., for construction etc., related to an airport) from the levy of Service tax subject to the fulfilment of certain key conditions, which are:

The contract for such services should have been entered into prior to 1 March 2015.

Appropriate stamp duty, wherever applicable, had been paid prior to 1 March 2015.

1. ‘Indian Aviation’, IBEF website, http://www.ibef.org/industry/indian-aviation, accessed 3 Mar 2016

15Eye on Defence |

The Ministry of Civil Aviation or the Ministry of Shipping in the Government of India certifies that the contract under which aforementioned services were provided had been entered into prior to 1 March 2015.

Hence, the contracts related to construction of an airport, which were entered into prior to 1 March 2015 but executed later on, have been retrospectively exempted from the levy of Service tax. Furthermore, the service providers have been provided with the option to claim refund of the Service tax already paid on this account within six months from the date from which the Finance Bill receives the assent of the President.

However, any contracts entered on or after 1 March 2015 will attract Service tax from 1 April 2015 onward.

There are various other indirect tax proposals that have been brought in with a view to reduce litigation backlog, improve ease of doing business and promote a tax-friendly administration. For instance, the interest rate for delayed payment of Customs duty, Excise duty and Service tax has been reduced to 15% per annum, barring specified scenarios. Moreover, various changes have been made to the CENVAT credit-related provisions.

However, the increase in limitation period for raising of demands (in cases not involving fraud, collusion etc.) under Excise and Customs from 12 months to 24 months, and under Service tax from 18 months to 30 months, is likely to result in increased litigation, even as the Government seeks to expedite dispute resolution vide the Indirect tax Dispute Resolution Scheme 2016.

Overall, the budget proposals seek to establish a balanced indirect tax system by rationalizing the exemptions on imports coupled with incentivizing the domestic industry, both manufacturing as well as services. The industry only wished that the FM should have included a few more robust measures focused on providing an impetus to the aerospace and defence sector.

16 | Eye on Defence

List of registered exhibitors at Defexpo 2016

A-1 Fence Products Company Pvt. Ltd. Aartech Solonics Ltd Abaco Systems ABHYUDAY TECHNO ECONOMIC CONSULTANT PVT LTD ACCORD SOFTWARE AND SYSTEMS PVT. LTD. ACCURATE GAUGING AND INSTRUMENTS PVT LTD ACCURATE INDUSTRIAL CONTROLS PVT. LTD. Aditya Techno Solutions Admiralty Shipyards JSC ADS Group Ltd Aerogel One Limited Aeromag - Aerosun Media Pvt Ltd AEROMAOZ LTD. AEROSPACE ENGINEERS AEROSPATIALE BATTERIES Aerotek Sika AvioSystems Pvt. Ltd. AGLAYA (Cyber Warfare Labs) Agmatel India Pvt Ltd AIMTREX Technologies Pvt Ltd Airborne Systems Airborne Systemss Airbus Group Al Cielo Inertial Solutions Lltd. ALKAN Allison Transmission India Pvt. Ltd. Almaz – Antey Air & Space Defence Corporation, JSC (Almaz-Antey Corp.) Almaz Central Marine Design Bureau, JSC ALPHA DESIGN TECHNOLOGIES PVT LTD AM General Amphenol Interconnect India Pvt. Ltd. Amplus Communication pte ltd Analinear Design Technologies Pvt Ltd Ananth Technologies Ltd Andhra polymers pvt ltd Andhra Pradesh Aerospace & Defence Electronics Park Andre Canada APOLLO HEAT EXCHANGERS PVT.LTD. APOLLO MICROSYSTEMS PVT LTD Ardmel Group ARI Simulation Armscor ARMSTRONG INDUSTRIAL Arsenal 2000 JSCo. Ascentech Engineering Solutions Pvt. Ltd. Ashok Leyland Ltd. Asian Press Group Pte Ltd Asteria Aerospace Private Limited

Astha Corporation Pvt Ltd Astra Microwave Products Ltd. ASTRONAUTICS C.A. LTD. Atlas Elektronik GmbH Audo Viso Private Limited Avalon Technologies Private Limited Avanna Software & Services Pvt Ltd Avon Protection AVRORA INDIA MARINE SYSTEMS PVT LTD AXISCADES Engineering Technologies Ltd AxleTech Internationa AXON INTERCONNECTORS AND WIRES PVT LTD

BADAWE ENGINEERS PRIVATE LIMITED BAE Systems India (Services) Pvt. Ltd. Balmer Lawrie & Co. Ltd Bauer Kompressoren Beechcraft Defense Company BEML Ltd BENENGG DESIGN AND MANUFACTURING PVT. LTD. Beretta Defense Technology Beth - El Zikhron Yaaqov Industries Ltd. BGI Engitech Pvt.Ltd Bharat dynamics limited Bharat Electronics Limited Bipromasz Bipron Trading S.A. BLA ETECH PVT LTD Blue Stampings & Forgings Ltd - Extrusion Division Boeing India Defense Private Limited BrahMos Aerospace Breeze Eastern Corporation BRYKA ELECTROSYSTEM & SOFTWARE PRIVATE LIMITED Burevestnik

Carpenter & Paterson India Private Limited Caterpillar CCO Creative Consulting GmbH CEASEFIRE INDUSTRIES LTD Central Design Bureau For Marine Engineering RUBIN Centre for Development of Telematics Centum Electronics Ltd CHAMBER OF MARATHWADA INDUSTRIES & AGRICULTURE CHANAKYA AEROSPACE, DEFENCE & MARITIME REVIEW Chowgule & Company Pvt.Ltd. CHW Forge Private Limited CI SYSTEMS LTD. CISB Technologies Pvt. Ltd

A

B

C

17Eye on Defence |

ERCON COMPOSITES Essar Steel India Limited Esterline Eternus Performance Materials Private Limited EURENCO EURONAVAL EVEREST KANTO CYLINDER LIMITED EXPLORER CASES by GT Line EXXELIA GROUP

Fedders Lloyd Corporation Limited Fincantieri Finmeccanica First Care Products Fischer Connectors India Pvt Ltd Flash Forge Pvt Ltd FLIR Systems Force Magazine FS Co.,Ltd Futura Automation Pvt. Ltd

Gala Precision Engineering PVT LTD Gandhi Automations Pvt Ltd Garden Reach Shipbuilders & Engineers Ltd Garg Associates Private Limited Geeta Engineering Works PVT. LTD. General Atomics General Dynamics Land Systems-Canada General Optics (Asia) Limited Geo Informatics Consultants Pvt. Ltd. GEW Technologies GICAN Global Components Inc Global IT Point Globez Sdn Bhd Goa Shipyard Limited Goldring Industries LTD Grand Polycoats Company Pvt Ltd Ground Co Ltd Growcontrols GTN Engineering (India) Limited

HARIOM INDOTS AND POWER PVT LTD HARWIN Heavy Engineering Corporation Limited Helmet Integrated Systems Ltd

CM Envirosystems Pvt. Ltd. Cobham Defence Colts Manufacturing Company LLC Concept Shapers & Electronics Pvt Ltd Concern Morinformsystem Agat JSC Continental Defence Solutions Pvt Ltd CONTROP PRECISION TECHNOLOGIES LTD. Cranfield Curtiss-Wright Defense Solutions

D.I Optical Co., Ltd DABI Llc DASAN MACHINERIES CO LTD DATA PATTERNS (INDIA) PVT LTD DataPath DCI DCNS DEE PIPING SYSTEMS (DEE Development Engineers Limited) Defence Research & Development Organisation (DRDO) Delta Automation Pvt Ltd. Denel SOC Ltd DESPAT PVT LTD DEXCEL ELECTRONICS DESIGNS PRIVATE LIMITED DHANAJAY INDUSTRIAL ENGINEERS PVT LTD DIAB Core Material Pvt Ltd Diehl Defence Holding GmbH Digital Broadcast India Pvt Ltd DOK-ING DSM Dyneema Asia Pacific DSM India P Ltd Duveet Co LTD

E.I. DUPONT INDIA PVT. LTD. ELBIT SYSTEMS LTD. Elcom Innovations Private Limited Elcomponics Sales Private Limited Electronet Equipment Pvt ltd Electropneumatics & Hydraulics (India) Private Limited Elektronik Lab Elettronica ELNO EM electronix private limited EMI SOLUTIONS PVT LTD EMSAC Engineering Pvt. Ltd. Enercon Technologies Ltd. ERAP KOREA Co.,Ltd.

D

E

F

G

H

List of registered exhibitors at Defexpo 2016 (cont’d.)

18 | Eye on Defence

Kalyani group Kappa optronics GmbH Karcher Cleaning Systems Private Limited KAVACH SECURE DYNAMIC TECHNOLOGY PVT. LTD KAYNES TECHNOLOGY INDIA PRIVATE LIMITED KBP NAMED AFTER ACADEMICIAN A. SHIPUNOV, JSC Khedcity - Khed Economic Infrastructure Pvt. Ltd. Kineco Kaman Composites India Private Limited Kineco Private Limited kirloskar oil engines limited KIRLOSKAR PNEUMATIC CO LTD Kollmorgen Corporation KONGSBERG Korea Defense Industry Association(KDIA) Kovrov electromechanical plant KVH Industries, Inc

L-3 Cincinnati Electronics L-3 Communication Systems - East L-3 Communications MAPPS Inc L3 Communications SDS CyTerra L-3 KEO L-3 Ocean Systems LACROIX LAKSHMI VACUUM TECHNOLOGIES PRIVATE LIMITED Larsen & Toubro Limited Laversab India Leafield Cases LIG Nex1 LiTak-Tak LMB Fans & Motors Lockheed Martin Lotus Aviation Technology Private Limited LPS Industrial Supplies Pvt. Ltd. LS telcom AG

M2K Technologies Pvt. Ltd Macgregor India MacTaggart Scott Magal Security Systems Ltd. Maharashtra Ex-Servicemen Corporation Ltd (MESCO) MAK Controls and Systems (P)Ltd MAN Diesel & Turbo Marine Electrical (I) Pvt Ltd MARINE FRONTIERS PRIVATE LIMITED MARSAP SERVICES PVT LTD MATN*S STABILISERS

HGH INFRARED SYSTEMS HIGH PRECISION WEAPONS, JSC HIGHTEMP FURNACES LIMITED Him Teknoforge Ltd. HIMACHAL FUTURISTIC COMMUNICATIONS LTD Hindustan Aeronautics Limited Hirtenberger Defence Systems GmbH & Co KG Honeywell Aerospace Huber+Suhner Electronics Pvt. Ltd. Hyderabad Precision Manufacturing Company Pvt. Ltd. Hydroma India Pvt. Ltd.

IAI - Israel Aerospace Industries Ltd. ICE Ltd IMR Media Pvt Ltd IMS GROUP Imtech Marine India Pvt Ltd India Strategic Inc Indian Armour Systems Pvt.Ltd. INDIAN DEFENCE REVIEW INDICA INDUSTRIES PRIVATE LIMITED Indo Group INTECH DMLS Pvt Ltd IRTS ISRAEL PAVILION IVCHENKO-PROGRESS, SE IWI - ISRAEL WEAPON INDUSTRIES LTD. IXBlue Pte Ltd

Jahagirdar Aero Products Jeet & Jeet Glass and Chemicals P Ltd. JISNU COMMUNICATIONS LTD Joint-stock company YANTAR shipyard JSC RADIOZAVOD JSC Concern Granit-Electron JSC Proletarsky zavod JSC R&P Corp. KBM JSC Russian Helicopters JSC Shvabe JSC Tecmash JSC Vympel Shipyard JUNGHANS Microtec GmbH

Kabra Extrusiontechnik Ltd Kadet Defence Systems ℗ Limited Kallman Worldwide, Inc.


I

L

M

J

K

19Eye on Defence |

OPGAL OPTRONIC INDUSTRIES LTD. Ophir Optronics Ltd. ORBIT Communication Systems Ltd Orbital ATK ORDNANCE FACTORY BOARD OTM Servo Mechanism Ltd

PAKO Communications Private Limited Pandect Precision Components Ltd Park Controls and Communications Pvt Ltd PCB Technologies Ltd Pearson Engineering Ltd PepperBall Physical Logic Ltd. PLANSEE INDIA HPM PVT LTD Plasan sasa Polaris India Pvt Ltd Poliplast, LTD Polish Armaments Group Precision Machinekraft (P) Ltd Precision power products india pvt ltd Presto Stantest Private Limited Pricol Engineering Industries Limited Proizvodstvennoye Ob`edinenie Severnoye mashinostroitelnoye predpriyatie SC Prosafe International Private Limited PSC Amurshipbuilding Plant PTC INDUSTRIES LIMITED Punj Lloyd Ltd Purbanchal Udyog Ltd

Qmax Test Equipments Pvt Ltd Quantum3D

RAFAEL ADVANCEDS DEFENSE SYSTEMS Raksha Supreme Camouflage Pvt Ltd Rangsons Electronics Private Limited Ratnamani Metals and Tubes Ltd Ray Service, a.s. Raytheon Realtime Techsolutions Pvt Ltd Reliance Defence Limited Research and Design Institute of sea thermal engineering,JSC Research Institute of Polymeric Materials, JSC RESISTOFLEX PVT. LTD.

Matrix Comsec Pvt Ltd MAZAGON DOCK SHIPBUILDERS LIMITED MBDA Meggitt Defence Systems MEPROLIGHT LTD. Messung erfi Microflown AVISA MicroMet-ATI India Private Limited MILCOTS- 901D MINERVA SPECIAL PURPOSE VEHICLE PRIVATE LIMITED Mistral Solutions Pvt. Ltd. MKU Mody Pumps India Pvt Ltd MORE MILITARY OPTICAL RF EQUIPMENT LTD. Moscow Research Institute Agat Motor Sich, JSC MS INSTRUMENTS LTD MSC Software Corporation India Pvt. Ltd. MTU Friedrichshafen GmbH Multisphere Power Solutions Pvt Ltd MVS ENGINEERING LIMITED MYMO Wireless Technology Pvt Ltd

Name Baltic Shipyard Ltd. Nammo AS Nanomotion Ltd. NARENDRA EXPLOSIVES LIMITED Nevskoe Design Bureau PJSC NEWSEYE MEDIA PVT LTD NEXTER SYSTEMS Nicomatic India Electronics Pvt. Ltd. Nihar Agrotech NIMDA DIESEL GROUP NIMI JSC NITIN FIRE PROTECTION INDUSTRIES LIMITED NOGA EINAT SHOE INDUSTRIES LTD. Nordic Shelter AS Norsafe AS Norwegian Defence and Security Industries Association Nucon Aerospace NUDELMAN PRECISION ENGINEERING DESIGN BUREAU

ODU GmbH and Co. KG OFFSET INDIA SOLUTIONS PVT LTD OIS ADVANCED TECHNOLOGY PVT LTD OIS AEROSPACE PRIVATE LIMITED Omsktrsnsmash

N

P

Q

R

O


20 | Eye on Defence

Reutech Robert Bass ROBOTEAM Rockwell Collins Rohde & Schwarz ROLTA INDIA LTD. ROSOBORONEXPORT Rotaryelectronics Pvt Ltd., ROTZLER Deutschland GmbH + Co. KG ROXEL Royal Norwegian Embassy RP OPTICAL LAB LTD. RPA Bazalt, JSC RTI, JSC RUNFLAT Tire Systems

S.G.MARKETING PVT. LTD. Saab AB SAFESURE RUNFLAT SYSTEM SAGEM Sahuwala Cylinders Pvt Ltd SAI SYNERGY LLP Saint-Petersburg Marine Design Bureau Malachite Samtel Avionics Ltd. Sanauto Engineers India Pvt. Ltd. Aerospace Division Sandeep Metalcraft Private Limited Sap Media Worldwide Ltd Saraswati Dynamics Private Limited SCD - SEMI CONDUCTOR DEVICES Scientific Production Association PRIBOR, JSC Seaborne International PET LLC SEC INDUSTRIES PVT LTD Sensonor AS SERVOCONTROLS AND HYDRAULICS INDIA PVT LTD Severnoye Design Bureau, JSC SFTE SpetsTechnoExport Shephard Media ShinMaywa Industries,Ltd Shipbuilding & Shiprepair Technology Center, JSC (JSC SSTC) Shipbuilding plant Severnaya Verf, JSC Shipreparing Center Zvyozdochka JSC Shree Refrigerations (P) Ltd. SI2 MICROSYSTEMS PVT LTD SIBAT Israel Ministry of Defense Sidwal Refrigeration Industries Private Limited Sika Interplant Systems Ltd Sika Tourism Pvt. Ltd. Sikka n Sikka Engineers Pvt. Ltd.

Sikorsky Simplex Castings Limited SMART SECURE INDIA PVT. LTD. Smart Shield SMPP PVT. LTD. SOGENA FRENCH PAVILION SOHAME AS SOLAR INDUSTRIES INDIA LIMITED Sonoscan, Inc. Soosung Defense Industries, Ltd Southern Electronics (Bangalore) Pvt Ltd SP Guide Publications Pvt Ltd SPLAV SPA, JSC Sredne - Nevsky Shipbuilding Plant, JSC SRG TECHNO PVT. LTD. SRKL Technovations Private Limited SSD POLYMERS SSV TECHNOCRATES Staco Systems Star Hentzen Coatings STAR WIRE INDIA LIMITED State Corporation ROSTEC STRONGFIELD TECHNOLOGIES LTD

TAK Technologies Pvt. Ltd. Tarang Kinetics Pvt Ltd TATA ADVANCED MATERIALS LIMITED Tata Advanced Systems Limited Tata Consultancy Services Tata Group Tata Motors Ltd TATRA EXPORT s.r.o. TCOM, L.P. TE Connectivity India Pvt. Ltd. TESSOLVE SEMICONDUCTOR PVT. LTD. Textron Systems Thales THE HI-TECH ROBOTIC SYSTEMZ The Tata Power Company Limited - Strategic Engineering Division THOTAKA TEKHNOLOGIES INDIA PRIVATE LIMITED Three Digi Prints Thrikasa Technologies ThyssenKrupp Marine Systems GmbH TITAN COMPANY LIMITED Tonbo Imaging Pvt Ltd Trasccon Interconnection Systems Pvt Ltd Tratec Engineers (P) Ltd Trikona Technologies Pvt. Ltd.

S

T


21Eye on Defence |

TTGA pvt ltd Tulsky Oruzheiny Zavod, JSC TVS Logistics Services Limited

UCAL-JAP SYSYTEMS LIMITED UCONSYSTEM CO Ltd. UKBTM UKTI Defence & Security Organisation ULIS SOFRADIR Ultra Dimensions Pvt Ltd ULTRA ELECTRONICS PALS Ultraweld Engineers Pvt. Ltd. Uni Tritech India, Division of Uni Deritend Limited Unified Electro-Tech Ltd UNITED ENGINE CORPORATION United Shipbuilding Corporation JSC (USC) Universal Avionics Systems Corp URALTRANSMASH URALVAGONZAVOD URDAN Metal & Casting Ind. USAI FORGE PRIVATE LIMITED UTC Aerospace Systems UURM V. Tikhomirov Scientific-research Institute of Instrument Design

V.A.DEGTYAREV PLANT, OJSC VAJRA RUBBER PRODUCTS (P) LTD Valeth Hightech Composites Private Limited VASINI & GUALANDI S.r.l. Vayu Aerospace and Defence Review Vega aviation products pvt ltd Vehere Interactive VEM Technologies Private Limited Venus Safety and Health Pvt Ltd Vestdavit VESTENS OCEAN AS Victorinox India Private Limited Vital Seating & Systems Limited Vitzrocell Co.,Ltd. VNII SIGNAL JSC VNIITRANSMASH VOGO.I SYSTEMS PVT LTD

UWALCHANDNAGAR INDUSTRIES LIMITED WALTHER GMBH, CARL Wartsila India Private Limited WATER MIST ENGNEERING AS Weiss Technik India Private Limited WHEELS INDIA LIMITED Wipro Enterprises Private Limited WOO KYUNG OPTICS Company

Yeoman Marine Services YUGOIMPORT-SDPR

Zelenodolsk Design Bureau, JSC ZEN TECHNOLOGIES LIMITED

V

Z

W

Y


22 | Eye on Defence

Request for Information (December–January 2016)

Date of issue RFP detail/equipment Response date Issued by Remarks

9 Feb 2016 High Explosive Squash Head (HESH) Ammunition for 120 MM Rifled Bore Main Gun for MBT Arjun Tank

22 Mar 2016 Director Indigenous Production (AC) Dte Gen of Mech Forces

For IA

9 Feb 2016 FIN Stabilized Armor Piercing Discarding Sabot (FSAPDS) Ammunition

22 Mar 2016 MGO PPO-5 For IA

8 Feb 2016 Electro Optical Pods for Reconnaissance and Observation Flights of Army Aviation

7 March 2016 Directorate General Army Aviation (AA-6)

For IA

5 Feb 2016 Light Bullet Proof Vehicle 24 Feb 2016 DGRR For IA

25 Jan 2016 Indigenous construction of Survey Training Vessel (STV)

21 Mar 2016 Integrated Head Quarters IN

For IN

22 Jan 2016 Night Vision Devices; Qty: 100 Nos. approximately

3 March 2016 Dte Of Plans For IAF

6 Jan 2016 Helicopter Satellite Tracking System

19 Jan 2016 Senior Engineer Air Force Station Sarsawa

For IAF

6 Jan 2016 30MM New Generation Ammunition

15 Feb 2016 DG of Mechanized Forces

For IA

30 Dec 2015 Aerostat Systems 24 Feb 2016 Dte Of Plans For IAF

23 Dec 2015 Anti-Tank Guided Missile for Advanced Light Helicopter Weapon Systems Integrated

21 Jan 2016 DG ARMY AVN For IA

22 Dec 2015 Mobile Satcom Tropo Terminal (MSTT)

16 Feb 2016 Dte of Plans For IAF

1 Dec 2015 Micro Unmanned Air Vehicle Fixed Wing

9 Dec 2015 3 ADV BASE WKSP PIN 906403 c/o 56

For IA

23Eye on Defence |

Request for proposal (December–January 2016)


9 Jan 2016 Thermal Imaging Camera 25 Jan 2016 30 Wing, AF

Air Force Station, Sarsawa

For IAF

8 Jan 2016 Design and Development of Test Equipment for Russian and Ukrainian Origin Air Launched Missiles

5 April 2016 Dte of Armt and Safety

For IAF

8 Jan 2016 Jet Propulsion Boat; Qty: 06 nos.

8 Feb 2016 Engrs Branch For IA

8 Jan 2016 4.6 M Antenna Based Ship Borne Telemetry Systems; Qty: 01 No.

22 Mar 2016 ITR*Integrated Test Range

Issued By DRDO

7 Jan 2016 Two man fast patrol Boat; Qty: 04 Nos.

8 Feb 2016 Engrs Branch, For IA

4 Jan 2016 Soft Armored Panel (SAP Protection Level-3A) of BP Jacket; Qty 42 Nos.

29 Jan 2016 CISF 5TH Reserve Battalion Indirapuram

For CISF

2 Jan 2016 Ropes on Single Bid System

18 Feb 2016 Controller Of Procurement Material

For IN

1 Jan 2016 Medium Machine Gun Fire Simulator; Qty: 08 Nos.

9 Feb 2016 Provisioning Directorate (Procurement Cell)

For BSF

31 Dec 2015 Electronic Shooting Range - QRs and TDs

--- Training Directorate For BSF

31 Dec 2015 Outdoor Reflex Shooting Range - QRs

--- Training Directorate For BSF

30 Dec 2015 Aerial Bombs (Make Sony Oye Bubbly)

6 Jan 2016 INS Dega

NAD Post

For IN

29 Dec 2015 Rifle Mounted Laser Dot Sight and Pointer; Qty: 270 No. each

2 Feb 2016 HQ WAC IAF

Subroto Park

For IAF

24 | Eye on Defence

Request for proposal (December–January 2016) (cont’d.)


28 Dec 2015 Speed Radar Gun; Qty: 01 Nos.

6 Jan 2016 Air Force Academy

Dundigal, Hyderabad

For IAF

28 Dec 2015 Up gradation of 25Mtr Shooting Range for training of shooters,

7 Jan 2016 --- For IA

26 Dec 2015 Bullet Proof Jacket; Qty: 1038 Nos.

16 Jan 2016 Engrs Branch, HQ South Western

For IA

26 Dec 2015 Coalescer and Separator Cartridge Type M

12 Jan 2016 Senior Logistics Officer - 8 WG

For IAF

18 Dec 2015 Nose Fuze Type A670M(Empty) for 30MM BMP-II Ammn.TO CQA(A); Qty: 81996 Set

12 Jan 2016 Ordnance Factory Badmal

Issued By OFB

22 Dec 2015 BEML Tatra ER (L) 8X8 vehicle

4 Jan 2016 Electronics & Radar Development Establishment

Issued By DRDO

22 Dec 2015 Coastal Security Boats and Accessories

17 Feb 2016 Indian Navy Sports Control Board

For IN

22 Dec 2015 Qualitative Requirement for Night Vision Device Thermal

7 Jan 2016 MHA Directorate General BSF

For BSF

21 Dec 2015 Concealable Body Armour; Qty: 340 Nos

27 Jan 2016 DG NSG For NSG

21 Dec 2015 Night Vision Devices 29 Dec 2015 AF Stn, Adampur For IAF

21 Dec 2015 Multi-Purpose Reflex Weapon Sight for 5.56 MM Assault Rifle

4 Jan 2016 Rifle Factory Ishapore Issued By OFB

21 Dec 2015 Telescopic Day Sight, Magnification-3X Min. for 5.56 Mm Assault Rifle &

4 Jan 2016 Rifle Factory Ishapore Issued By OFB

1 Dec 2015 Pulse Phased Array Tracking Radar

19 Feb 2015 PXE, Chandipur Issued By DRDO

25Eye on Defence |


1 Dec 2015 Maintenance Contract With HAL

14 Dec 2015 DOMR, DRDL, Kanchanbagh

Issued By DRDO

2 Dec 2015 Uncool thermal Imager for Assault rifle

22 Dec 2015 Instruments Research & Development Establishment

Issued By DRDO

7 Dec 2015 Refurbishment of AVRO Aircraft

22 Dec 2015 Air Force Station, Borjhar, Guwahati

For IAF

9 Dec 2015 Development of Anti-Personnel Mine Simulation Package

30 Dec 2015 Commandant CME, PO-Dapodi, Pune

For IA

11 Dec 2015 Driving Simulator For Heavy Vehicle

20 Jan 2016 Directorate General, Border Security Force

For BSF

17 Dec 2015 PP Ropes (Polypropylene Ropes)

7 Jan 2016 Material Organization, Visakhapatnam

For IN

17 Dec 2015 Advance Small Arms Training Simulator-8 Lane (ASATS); Qty: 25 Nos

21 Jan 2016 Proc cell Dte. Genl, CRPF

For CRPF

18 Dec 2015 Air Weapons for Indoor Precision Shooting

26 Dec 2015 GSO-1 (Training) For IA

18 Dec 2015 Light Bullet Proof Vehicle; Qty:42 Nos.

28 Jan 2016 Prov Dte (Proc Cell) For BSF

18 Dec 2015 Manufacturing of various components made up of aluminum alloy for Wheeled Armored Vehicle

28 Jan 2016 Vehicle Research & Development Establishment

Issued By DRDO

18 Dec 2015 Nylon Filament Rope OG 16MM DIA; Qty: 7282 Mtr

8 Jan 2016 Napier Road Cantt., Kanpur

For OFB

18 Dec 2015 Rope Station for Fighters Squadron at Indian Naval Academy; Qty: 04Nos.

1 Jan 2016 Indian Naval Academy

For IN

Request for proposal (December–January 2016) (cont’d.)

26 | Eye on Defence

List of Industrial Licenses (ILs) filed for January 2016–February 2016

Application no. and date

Name of the applicant Item of manufacture

24

25/02/2016 M/s Giridhari Explosives Pvt. Ltd. Slurry

23

24/02/2016M/s Scarlet Industries Pvt. Ltd. Metal working service activities

22

24/02/2016

M/s Schoeller Technologies India Pvt. Ltd.

Multi Spectral Camouflage Nets

21

24/02/2016M/s Barracuda Camouflage Pvt. Ltd. MSCN

20

24/02/2016M/s River Engineering Pvt. Ltd.

Guidance and navigation equipment for military aircraft

19


Imaging equipment, night vision devices, optical sights and thermal imager for guns and tanks

18

24/02/2016M/s VST Industries Ltd. Cigarettes

17


Fuel pump, its parts/ components and accessories of fuel system for Military Aircraft.

16

16/02/2015M/s Skil Advanced Systems Pvt. Ltd.

Arms and ammunitions of all types for Army/ Navy and Airforce and Homeland Security

15

15/02/2016M/s Skil Advanced Systems Pvt. Ltd. Manufacture of helicopters

14

15/02/2016

M/s Vinyas Innovative Technologies Pvt. Ltd.

Microwave components and modules for EW Radar and sub systems

13

05/02/2016M/s SEC Industries Pvt. Ltd. Metal working service activities.

12

01/02/2016M/s Entremonde Polycoaters Ltd.

Miscellaneous concealment and deception equipment specially design for military application-MSCN

27Eye on Defence |

List of Industrial Licenses (ILs) filed for January 2016–February 2016 (cont’d.)

Application no. and date

Name of the applicant Item of manufacture

11

01/02/2016M/s Bharij Fabricators Bullet proofing for all types of vehicles, SUVs

10

27/01/2016

M/s Himachal Futuristic Communications Ltd.

Concealment and deception equipment specially designed for military application

9

18/01/2016M/s Texmaco Rail & Engineering Ltd.

Design, development, manufacture, assembly and upgrade of artillery guns/Howitzers

8

15/01/2016M/s SEC Industries Pvt. Ltd. Metal working service activities

7

08/01/2016

M/s Kalyani Rafael Advanced Systems Pvt. Ltd.

Manufacture, upgrade and overhaul of tanks and other armored fighting vehicles

6

07/01/2016 M/s Eirene Unmanned Systems Pvt. Ltd. UAV

5

07/01/2016M/s Eirene Strategic Systems Pvt. Ltd. Tanks

4

07/01/2016

M/s Texmaco Rail & Engineering Pvt. Ltd.

Manufacture of empty shells required for ammunition and explosives, e.g., bombs, mines, missiles, torpedo

3

07/01/2016

M/s Texmaco Rail & Engineering Pvt. Ltd.

Design, development and production of ready to use ammunition of 22 mm caliber

2

01/01/2016

M/s Sagar Defence Engineering Pvt. Ltd.

Unmanned boats

1

01/01/2016M/s D Gipro Systems Pvt. Ltd. Electronic component such as fuzes

28 | Eye on Defence

Name of entity Project details Value*

Defense Acquisitions Council (DAC) and Indian Air Force (IAF)

• ℗ DAC approved purchase of five Russian S-400 Triumf air defence missile systems worth INR412 billion for the IAF.

• ℗ The system is capable of destroying incoming hostile aircraft, missiles and drones within a range of 400 km, with 2.5 times faster firing rate as compared to its predecessor, the S-300.

• ℗ DAC also cleared the digitization of 24 Pechora Air Defence surface-to-air missile system for INR12 billion.

INR412 billion

DAC and Indian Army

• ℗ DAC granted Acceptance of Necessity (AoN) for purchase of six regiments of the Pinaka rocket system worth INR146 billion for the Indian Army.

• ℗ In addition to the rocket system, DAC approved purchase of 571 light bullet-proof vehicles (worth INR3.1 billion), 120 trawls to be used on Russian-origin T-72 and T-90 tanks (worth INR4.5 billion) and an electronic warfare system (worth INR4.25 billion).

~INR158 billion

Lockheed Martin • ℗ ℗Lockheed Martin has been awarded a contract to provide pilot night vision sensor (PNVS) systems, its spares and Modernised Target Acquisition Designation Sight (M-TADS) systems to the Indian Army for Apache helicopters.

• ℗ All PNVS and M-TADS systems are expected to be delivered by December 2021.

INR74.4 billion (US$107.8 million)

Hindustan Aeronautics Limited (HAL) and Rostech

• ℗ HAL has tied up with the Russia’s Rostech State Corporation for manufacture of at least 200 Kamov 226T light helicopters under the “Make in India” initiative to replace the ageing fleet of Cheetah and Chetak.

INR69 billion (US$1 billion)

Cabinet Committee on Security and James Fisher Defense

• ℗ CCS approved the purchase of two deep-submergence rescue vessels (DSRVs) from a UK-based company, James Fisher Defence for the Indian Navy.

• ℗ The deal was pending, since June 2000, when the Indian Navy initiated the request for two DSRVs.

INR19 billion

Kerala State Electronics Development Corporation (Keltron)

• ℗ ℗Keltron, the only indigenous manufacturer of re-transmission units for naval ships in India, has received an order for manufacturing four re-transmission units for naval ships from the Indian Navy.

~INR54 million

Ministry of Defence (MoD), Tata Advanced Materials and MKU

• ℗ ℗The MoD plans to procure 50,000 bulletproof jackets from two companies, Tata Advanced Materials and MKU Pvt. Ltd., 25,000 jackets each.

• ℗ The final contract is expected to be signed in first half 2016.

NA

New projects/investments/contracts

29Eye on Defence |

*The values of the deals have been converted to Indian Rupees. 1US$ = INR69.Sources:1. “Government clears purchase of five S-400 air defence systems worth Rs 40,000 crore: Sources,” The Economic Times, 29 October 2015, via

Factiva2. “Russian S-400 Triumf missile to boost Indian defence system,” Hindustan Times, 18 December 2015, via Q-tech Synergy Newsletter3. “Defence Ministry to buy bulletproof jackets from two companies,” Indian Express, 30 December 2015, via Q-tech Synergy Newsletter4. “Lockheed Martin bags $108-m Indian Army contract,” Business Line, 24 December 2015, via Factiva5. “Hindustan Aeronautics Limited ties up for manufacturing Russian Kamov helicopters,” Business Today, 30 December 2015, via Q-tech Synergy

Newsletter 6. “Centre clears Rs 1,900 crore deal for Navy to acquire two deep-submergence rescue vessels,” The Economic Times, 11 March 2016, via Q-tech

Synergy Newsletter7. “Keltron bags Rs 5 crore order from Indian Navy for supply of four sets of re-transmission units,” The Economic Times, 29 January 2016, via

Q-tech Synergy Newsletter8. “Russian aircraft service centre soon in India,” Russia and India report, 5 February 2016, via Q-tech Synergy Newsletter9. “PM lays foundation stone for HAL’s chopper-making unit,” The Hindu, 4 January 2016, via Factiva10. “Defence Ministry Signs 50 Manufacturing MoUs with Global Helicopter, Jet Makers,” Business World, 16 February 2016, via Q-tech Synergy

Newsletter11. “Test in India: Military ranges, labs opened to private players to test equipment,” The Economic Times, 17 December 2015, via Factiva

Name of entity Project details Value*

ASC Aeronautical Equipment

• Russia-based ASC Aeronautical Equipment will open a service center in India by end of March 2016.

• It will be engaged in repairing Russian military vehicles, supplying accessories and ground equipment for aircraft and helicopters currently operating in India.

NA

HAL • HAL has laid the foundation stone of a helicopter manufacturing facility at Tumakuru in Karnataka.

• The facility will produce 3-10 tons class of helicopters. Operational clearance of the basic version of helicopter is expected in 2016–17.

NA

MoD • During the ”Make in India” week, held in Mumbai from 13–18 February, the MoD has signed around 50 MoUs for defense equipment manufacturing in India especially for manufacturing of jets and helicopters with global companies.

• The manufacturing of helicopters and jets in India is expected to create more than 100,000 employment opportunities.

NA

MoD • The MoD has opened several testing facilities and military ranges for private players for R&D and new equipment development activities.

• The facilities will primarily provide weapon range testing and material tensile strength testing.

• To avail the facility, private players will need to submit financial documents and equipment details to the MoD.

NA

New projects/investments/contracts (cont’d.)

30 | Eye on Defence

Name of the entities

Nature of transaction Value

Reliance Defence Ltd. and Almaz-Antey

• ℗ ℗Reliance Defence Ltd. and Russian defense manufacturer Almaz-Antey have decided to jointly make missiles and radar systems for the Indian armed forces.

• ℗ The tie-up will also focus on joint implementation of modernization, repair and overhaul of Almaz-Antey systems that are already in service with the Indian forces.

INR400 billion

Reliance Defence Ltd. and Tatra

• ℗ Reliance Defence and Czech Republic-based vehicle manufacturer, Tatra, have entered a 51:49 JV, to manufacture and provide services to military trucks for India as well as international markets.

INR35 billion (annually)

Premier Explosives and Israel Aerospace Industries (IAI)

• ℗ Premier Explosives Ltd. (PEL) has signed a memorandum of understanding (MOU) with Israel Aerospace Industries Limited (IAIL) for exploring potential business opportunities in surface-to-air (SAM) missiles.

NA

Mahindra Defence and Airbus Helicopters

• ℗ ℗Mahindra Defence and Airbus Helicopters have entered into an agreement to form a JV for production of helicopters in India.

• ℗ The partnership will lead to transfer of state-of-the-art technologies and development of manufacturing activities to India.

NA

Kalyani Strategic Systems Ltd.

(KSSL) and Saab

• KSSL and Swedish defense company Saab, formed a JV for a multi-billion dollar contract for short–range, surface-to-air missile and man-portable very short-range air defense (VSHORAD) programs.

NA

KSSL and Rafael Advanced Defense Systems

• KSSL and Rafael have entered into a JV to bid for key defense programs in India such as infant combat vehicle BMP II upgrade, tactical control systems and other advanced systems.

NA

Punj Lloyd Ltd and Israel Weapon Industries (IWI)

• Punj Lloyd Ltd. and IWI entered a 51:49 JV to manufacture small arms in India.

• Initially, the JV will focus on manufacturing small components for guns, which will be exported to Israel for final assembly while later on complete guns will be made in India.

NA

Mahindra Defence and BAE Systems

• BAE Systems has partnered with Mahindra Defence for the assembly, integration and testing (AIT) facility for the 145 M777 ultra-light howitzers, recently ordered by the Government of India (GoI).

NA

JVs and alliances

Sources:1. “Reliance Defence ties up with Russian firm for air missile systems,” The Hindu, 24 December 2015, via Factiva2. “Post FDI policy change, Tatra set to partner with Reliance Defence for making military trucks,” The Economic Times, 30 December 2015, via

Q-tech Synergy Newsletter3. “India’s Premier Explosives and Israel Aerospace Industries agree to explore missile collaboration,” IHS Jane’s 360, 6 January 2016, via Factiva4. “Mahindra, Airbus Pact To Make Helicopters Among 16 India-France Deals,” NDTV India, 25 January 2016, via Q-tech Synergy Newsletter5. “Bharat Forge arm forms JV with Rafael Advanced Defense Systems,” The Economic Times, 9 February 2016, via Q-tech Synergy Newsletter6. “Israeli-Indian JV to make small arms in private sector,” The Indian Express, 4 February 2016, via Q-tech Synergy Newsletter7. “BAE announces Mahindra as partner for the M777 ultra-light howitzers deal,” The Economic Times, 18 February 2016, via Q-tech Synergy

Newsletter8. “Kalyani Group, Sweden’s Saab tie up for air defence systems,” Money Control, 13 February 2016, via Q-tech Synergy Newsletter

31Eye on Defence |

Country-level deals and initiatives

Country Nature of transaction Additional details

Japan • ℗ Japan’s ShinMaywa industries, the manufacturer of US-2 amphibious aircraft, plans to set up a manufacturing plant in India to cater to large local as well as global demand.

• ℗ The investment in the manufacturing plant will serve the 30% offset clause for the 12 US-2 aircraft orders from the Indian Navy.

Japan • ℗ Indian and Japanese troops successfully conducted the 15th bilateral Sahyog-Kaijin joint exercise in the Bay of Bengal.

• ℗ ℗From the Indian side, ICGS Samudra Paheredar, ICGS Sarang, ICGS Vishwast, ICGS Rajtarang, ICGS Rajkamal, a Dornier 228 and Chetak helicopters participated while from Japan JCGS Echigo and Sikorsky S-76 helicopter participated.

Israel • ℗ ℗India plans to conclude key bilateral military deals and projects with Israel, collectively worth INR180 billion, before Prime Minister Modi’s visit to Israel, this year.

• ℗ ℗The key deals include medium-range surface-to-air missile system (worth INR100 billion), acquisition of 164 laser-designation pods for IAF fighters and 250 advanced Spice precision stand-off bombs.

South Africa and Brazil

• ℗ India, South Africa and Brazil conducted 5th IBSAMAR (India-Brazil-South Africa Maritime) naval exercise off the Goa coast.

• ℗ The scope of the exercise includes a complex trilateral naval exercise involving participation of ships, submarine, aircraft and Special Forces from all three countries.

The US • ℗ The US has updated its policy on gas-turbine engine technology transfer to India to increase cooperation for design and manufacturing of sensitive jet engine components.

• ℗ ℗During a meet held in December 2015, between Indian Defence Minister and the US Defense Secretary, total 17 new ideas were discussed. The US proposed 11 new ideas while India proposed six new proposals.

Russia • ℗ ℗India and Russia have decided to invest INR276 billion (US$4 billion) each, for the Fifth Generation Fighter Aircraft (FGFA) development program. The two countries will jointly manufacture 250 FGFAs.

• ℗ The project has been already delayed by two years. However, India’s push for the program will bring the project on track with a FGFA prototype expected to be completed by 2019.

Sources: 1. “Make in India boost: Japan offers to set up plant in India for US-2 amphibious aircraft,” The Economic Times, 1 February 2016, via Q-tech

Synergy Newsletter2. “Indo-Japan Coast Guard Exercise Sahyog-Kaijin,” Vayu Aerospace & Defence Review, 26 February 2016, via Factiva3. “Fresh push for Israeli missile system,” The Times of India, 9 February 2016, via Factiva.4. “India, Brazil, South Africa joint naval exercise off Goa coast,” Indo-Asian News Service, 22 February 2016, via Factiva5. “US updates jet-engine technology transfer policy with India,” The Economic Times, 11 December 2015, via Factiva6. “After Manohar Parrikar’s push, India & Russia revive talks on fifth generation fighter programme,” The Economic Times, 11 February 2016, via

Factiva

32 | Eye on Defence

33Eye on Defence |

Industry buzz

Tejas undergoing scheduled weapon trials India’s indigenous Light Combat Aircraft (LCA), Tejas, is going through weapon trials that are part of the Final Operational Clearance (FOC) mandate. The aircraft has successfully fired a Beyond Visual Range Air-to-Air Missile (BVRAAM) missile, Derby, from its limited series production platforms. Tejas is also scheduled to fire a Close Combat Missile (CCM) Python-5 missile, during the next quarter, as part of the FOC trails.

(Source: “Tejas fires Derby missile in Jamnagar”, One India, 5 February 2016, via Q-tech Synergy Newsletter)

BARAK 8 missile test fired successfullyIndia has successfully test fired its newly developed Long Range Barak 8 Surface-to-Air Missile (LRSAM). The firing trial was jointly carried out by the Indian Navy, Defence Research and Development Organization (DRDO) and Israel Aerospace Industries from Indian Navy’s Kolkata class destroyer.

(Source: “India test fires long range Barak 8 missile,” Business Line, 31 December 2015, via Factiva)

Indigenously developed anti-tank missile, Nag, test firedDRDO successfully test fired indigenously-built third generation, fire-and-forget anti-tank missile, Nag during a night trial in the Mahajan Field Firing Range, Rajasthan. A thermal target system (TTS) was used as target for the missile. This will be followed by some other tests under different conditions in summer and winter during 2016.

(Source: “Nag missile hits bull’s eye with modified seeker,” The Hindu, 15 January 2016, via Q-tech Synergy Newsletter)

Indigenously developed, surface-to-surface missile, Prithvi-II successfully test firedThe Indian Army has conducted successful test fires of the Prithvi-II surface-to-surface missile, which has a strike range of 350 km and is capable of carrying 500 kg to 1,000 kg warheads. The test was carried out from a mobile launcher in launch complex-3 of the Integrated Test Range (ITR) at Chandipur, in Orissa. It uses advanced inertial guidance system with maneuvering trajectory to hit its target.

(Source: “Army successfully test-fires Prithvi-II missile,” Domain-B, 16 February 2016, via Factiva)

INS Arihant successfully completes all testsIndia’s nuclear-powered ballistic missile submarine, INS Arihant, is ready for full-fledged operations, and is expected to be commissioned soon. Since September 2015, the submarine has gone through several deep sea and weapon launch system tests. The Indian Navy is working on two more Arihant class submarines at the ship building center (SBC) in Visakhapatnam, which will be larger and more advanced than the first submarine.

(Source: “India’s first nuclear submarine INS Arihant ready for operations, passes deep sea tests,” The Economic Times, 23 February 2016, via Q-tech Synergy Newsletter)

India shows off its naval might in VisakhapatnamThe Indian Navy conducted International Fleet Review (IFR) during 4-8 February in Visakhapatnam with 75 frontline Indian warships and submarines. The IFR was aimed to strengthen naval ties among friendly countries and was attended by navies of 50 nations and 21 naval chiefs. Moreover, some of the key navies such as the US, French, British and Chinese warships participated in the IFR in Bay of Bengal.

(Source: “India’s naval might on display off Visakhapatnam,” The Statesman, 6 February 2016, via Factiva)

34 | Eye on Defence

Indian defense budget increased by ~11%The GoI has raised India’s defense budget by 10.9% to ~INR2,491 billion for FY17, as compared to INR2,246 billion in the revised budget for FY16. However, it represents an increase of only 1% as compared to the original budgeted expenditure for FY16. The increase in defense budget was driven by the modernization of the Indian armed forces. The GoI increased its capital outlay budget for defense by INR50 billion to INR863 billion. The increase in capital outlay will enable the Ministry to pay for the first installment of ~INR150 billion for proposed deal for 36 Rafale fighter jets.

(Source: “Modest 10.9% boost for Defence sector”, The Pioneer, 1 March 2016, via Factiva)\

Ministry of Defence (MoD) approves amendments in new Defence Procurement Procedure (DPP)The MoD has made some amendments in the new DPP, emphasizing on higher indigenization in line with the “Make in India” program and providing a major role for the private sector in arms manufacturing. The new DPP contains a new category indigenously designed, developed and manufactured (IDDM) category. The new regulations will apply only to new projects and not to those which are already in process.

(Source: “MoD approves amendments in DPP,” Press Information Bureau, 16 February 2016, via Q-tech Synergy Newsletter)

Indian defense exports increased by during the first three quarters of FY16The total exports from Indian defense companies during the first three quarters of FY16 stood at around INR7 billion. This is an increase of approximately 200% from the three quarters in FY15. The rise in exports was led by private defense companies. For the first three quarters, exports by private defense companies increased from INR1.3 billion in FY15 to INR4.4 billion in FY16.

(Source: “Defence exports by Indian firms in 2015 up three-fold from last year,” The Economic Times, 11 December 2015, via Q-tech Synergy Newsletter)

MoD also amends offset policy making them more flexible for foreign companiesThe MoD amended its offset policy. For the “Buy Global”, category the threshold of indigenous content for offset has been brought down from 50% to 30%. The process for seeking changes to signed offset contracts is likely to be more transparent and speedy.

(Source: “Amendment to the Offset Provision”, Press Information Bureau, 16 December 2015, via Q-tech Synergy Newsletter)

GoI likely to set up a separate entity for defense acquisitionsThe MoD plans to create a separate set-up for defense acquisitions, for speedy acquisition of defense equipment acquisition. The set-up is expected to be ready by end of 2017.

(Source: “Government Mulling Separate Set Up For Defence Acquisition: Manohar Parrikar,”NDTV, 25 February 2016, via Factiva)

Local vendors won around 65% of Indian defense contracts in 2015The expenditure on capital acquisition, in respect of order placed on Indian vendors, is more than that of foreign vendors for the period 2014–15. The local vendors bagged 62% (INR406 billion) while the foreign vendors received 38% (INR250 billion) of Indian defense contracts. The Government of India (GoI) is targeting 70% indigenization in Indian defense manufacturing by 2027.

(Source: “Foreign Deals in Defence Sector under make in India Policy,” Press Information Bureau, 11 December 2015, via Q-tech Synergy Newsletter)

Industry buzz (cont’d.)

For more information, visit www.ey.com/in

Connect with us

Assurance, Tax, Transactions, Advisory A comprehensive range of high-quality services to help you navigate your next phase of growth

Read more on ey.com/IN/en/Services

Our services

Centers of excellence for key sectors Our sector practices ensure our work with you is tuned in to the realities of your industry

Read about our sector knowledge at ey.com/IN/en/Industries

Sector focus

Easy access to our knowledge publications. Any time.

http://webcast.ey.com/thoughtcenter/

Webcasts and podcasts

www.ey.com/subscription-form

Follow us @EY_India Join the business network from EY

Stay connected

35Eye on Defence |

36 | Eye on Defence

EY — your trusted advisor for aerospace and defence projectsEY ranked as the #1 professional services brand in India for the third time in a row* in the Global Brand Survey conducted by Kantar.

In India, EY with its dedicated team of aerospace and defence (A&D) professionals, functional capabilities and globally experienced talent, enables its international clients to successfully enter, operate and succeed in the Indian market.

For further details, please contact: Sailesh Rao, Leader Defence Advisory | [email protected]

What makes us different?

Select experience Services

• Dedicated A&D teams with specialization in packaging business advisory with regulatory advisory

• Team members involved in prestigious projects such as:

• Drafting the Defence Procurement Procedures and founding the Defence Offset Facilitation Agency

• Setting up an A&D manufacturing facility at Mahindra aero-structures

• Total experience of 66 man years in the armed forces; MoD administrative experience of 14 man years

• Offset structuring worth US$ 3.7

executed successfully

• Experience with foreign clients include large US, European and South Asian multinationals; strong capabilities in offset program and supply chain structuring and vendor

• Capabilities in market entry strategies for renowned Indian clients and a host of MSMEs

• Strong connects with Indian companies across manufacturing and services sector

• Project methodology driven by primary information and deep sectoral competencies

• Eye on Defence — India’s largest circulated and read A&D quarterly

• Joint research with CII on opportunities with DPSUs and in offsets and on enhancing the participation of MSMEs in India with CII

• Invited speaker at prestigious A&D conventions; US-India HTCG, Aero India, Singapore Airshow and GOCA

• Contribution to policy recommendations at industry bodies such as AMCHAM, USIBC, CII, FICCI etc.

• One of our team members was a part of the 10—member committee to suggest changes to the DPP 2013.

• One of our team members had provided input to the Indian Defense Offset policy in 2006.

• EY prepared a research paper for the DRDO on enhancing the participation of the private sector in Defence R&D.

• EY prepared a white paper for DOMW (DDP) to analyze the effects of the abeyance order on services as valid offset discharge.

Team of sector experts Multiple engagements in the sector

Thought leaders in the sector MoD policy advisory experience

Offset related services• • Regulatory compliance• Finalization of offer

Mergers and acquisitions• Asset & capital allocation advisory• Buy-side M&A advisory• Sell-side M&A advisory• Capital markets lead advisory services

Business advisory• • • New market investment strategy• Strategic portfolio services

Regulatory advisory• Export licensing• Industrial licensing• FIPB application

Taxation• Specialized defence project taxes optimization • Business tax • Indirect tax• International tax• Transaction tax

This announcement appears as a matter of record only.






Large Indian Infrastructure GroupBusiness advisory

Entry strategy in A&D

US Strategic Electronics OEMLitigation services

Advisory services

Tax compliance

US Jet Engine ManufacturerOffset advisory

Business advisory

Tax advisory

Transfer pricing

US Aerospace Systems OEMTax advisory

Tax compliance

Transfer pricing

Transaction tax services

Risk advisory services

Indian DPSU Shipyard Business advisory

Formulation of business plan

and implementation procedure

Swiss Aircraft ManufacturerOffset advisory

Business advisory

Tax advisory

*Ranked as #1 brand in India for three consecutive editions of the biennial Global Brand Survey 2015 (Kantar), 2013 (TNS), 2011 (TNS)

© C

opyr

ight

201

6 Er

nst &

You

ng L

LP. A

ll rig

hts

rese

rved

.

Disclaimer: The information contained herein does not constitute an offer to sell or a solicitation of an offer or a recommendation to purchase securities under the securities laws of any jurisdiction, including the United States Securities Act of 1933, as amended, or any US state securities laws, or a solicitation to enter into any other transaction. Any securities transactions with a US-based buyer will be effected through Ernst & Young Corporate Finance (Canada) Inc., a US registered broker-dealer that is part of a global network with Ernst & Young LLP in accordance with Rule 15a-6 under the United States Securities Exchange Act of 1934, as amended.

Our offices in India

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit www.ey.com/in.

Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata - 700016

© 2016 Ernst & Young LLP. Published in India. All Rights Reserved.

EYIN1604-030 ED None

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

MM

EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global Limited

Ernst & Young LLPEY | Assurance | Tax | Transactions | Advisory

For more information , please contact:

K. Ganesh RajPartner and LeaderAerospace and Defence PracticeErnst & Young Pvt. Ltd.Tel: + 91 120 671 7110Email: [email protected]

Ankit TyagiAssociateCorporate Finance Strategy Aerospace & DefenceErnst & Young Pvt. Ltd.Mob: + 91 9711132596Email: [email protected]

Ahmedabad 2nd floor, Shivalik Ishaan Near. C.N Vidhyalaya Ambawadi Ahmedabad-380015 Tel: +91 79 6608 3800 Fax: +91 79 6608 3900

Bengaluru 12th & 13th floor “U B City” Canberra Block No.24, Vittal Mallya Road Bengaluru-560 001 Tel: +91 80 4027 5000 +91 80 6727 5000 Fax: +91 80 2210 6000 (12th floor) Fax: +91 80 2224 0695 (13th floor)

1st Floor, Prestige Emerald No.4, Madras Bank Road Lavelle Road Junction Bengaluru-560 001 India Tel: +91 80 6727 5000 Fax: +91 80 2222 4112

Chandigarh 1st Floor, SCO: 166-167 Sector 9-C, Madhya Marg Chandigarh-160 009 Tel: +91 172 671 7800 Fax: +91 172 671 7888

Chennai Tidel Park, 6th & 7th Floor A Block (Module 601,701-702) No.4, Rajiv Gandhi Salai, Taramani, Chennai-600113 Tel: +91 44 6654 8100 Fax: +91 44 2254 0120

Delhi NCR Golf View Corporate Tower – B, Sector 42, Sector Road Gurgaon–122 002 Tel: +91 124 464 4000 Fax: +91 124 464 4050

3rd & 6th Floor, Worldmark-1 IGI Airport Hospitality District Aerocity New Delhi-110037, India Tel: +91 11 6671 8000 Fax +91 11 6671 9999

4th & 5th Floor, Plot No 2B Tower 2, Sector 126 NOIDA-201 304 Gautam Budh Nagar, U.P. India Tel: +91 120 671 7000 Fax: +91 120 671 7171

Hyderabad Oval Office,18, iLabs Centre Hitech City, Madhapur Hyderabad - 500081 Tel: +91 40 6736 2000 Fax: +91 40 6736 2200

Kochi 9th Floor “ABAD Nucleus” NH-49, Maradu PO Kochi - 682 304 Tel: +91 484 304 4000 Fax: +91 484 270 5393

Kolkata 22, Camac Street 3rd Floor, Block C” Kolkata-700 016 Tel: +91 33 6615 3400 Fax: +91 33 6615 3750

Mumbai 14th Floor, The Ruby 29 Senapati Bapat Marg, Dadar (west) Mumbai-400 028, India Tel: +91 22 6192 0000 Fax: +91 22 6192 1000

5th Floor Block B-2 Nirlon Knowledge Park Off. Western Express Highway Goregaon(E) Mumbai-400 063, India Tel: +91 22 6192 0000 Fax: +91 22 6192 3000

Pune C—401, 4th floor, Panchshil Tech Park Yerwada (Near Don Bosco School) Pune-411 006 Tel: +91 20 6603 6000 Fax: +91 20 6601 5900

EY — your trusted advisor for aerospace and defence projectsEY ranked as the #1 professional services brand in India for the third time in a row* in the Global Brand Survey conducted by Kantar.

In India, EY with its dedicated team of aerospace and defence (A&D) professionals, functional capabilities and globally experienced talent, enables its international clients to successfully enter, operate and succeed in the Indian market.

For further details, please contact: Sailesh Rao, Leader Defence Advisory | [email protected]

What makes us different?

Select experience Services

• Dedicated A&D teams with specialization in packaging business advisory with regulatory advisory

• Team members involved in prestigious projects such as:

• Drafting the Defence Procurement Procedures and founding the Defence Offset Facilitation Agency

• Setting up an A&D manufacturing facility at Mahindra aero-structures

• Total experience of 66 man years in the armed forces; MoD administrative experience of 14 man years

• Offset structuring worth US$ 3.7

executed successfully

• Experience with foreign clients include large US, European and South Asian multinationals; strong capabilities in offset program and supply chain structuring and vendor

• Capabilities in market entry strategies for renowned Indian clients and a host of MSMEs

• Strong connects with Indian companies across manufacturing and services sector

• Project methodology driven by primary information and deep sectoral competencies

• Eye on Defence — India’s largest circulated and read A&D quarterly

• Joint research with CII on opportunities with DPSUs and in offsets and on enhancing the participation of MSMEs in India with CII

• Invited speaker at prestigious A&D conventions; US-India HTCG, Aero India, Singapore Airshow and GOCA

• Contribution to policy recommendations at industry bodies such as AMCHAM, USIBC, CII, FICCI etc.

• One of our team members was a part of the 10—member committee to suggest changes to the DPP 2013.

• One of our team members had provided input to the Indian Defense Offset policy in 2006.

• EY prepared a research paper for the DRDO on enhancing the participation of the private sector in Defence R&D.

• EY prepared a white paper for DOMW (DDP) to analyze the effects of the abeyance order on services as valid offset discharge.

Team of sector experts Multiple engagements in the sector

Thought leaders in the sector MoD policy advisory experience

Offset related services• • Regulatory compliance• Finalization of offer

Mergers and acquisitions• Asset & capital allocation advisory• Buy-side M&A advisory• Sell-side M&A advisory• Capital markets lead advisory services

Business advisory• • • New market investment strategy• Strategic portfolio services

Regulatory advisory• Export licensing• Industrial licensing• FIPB application

Taxation• Specialized defence project taxes optimization • Business tax • Indirect tax• International tax• Transaction tax







Large Indian Infrastructure GroupBusiness advisory

Entry strategy in A&D

US Strategic Electronics OEMLitigation services

Advisory services

Tax compliance

US Jet Engine ManufacturerOffset advisory

Business advisory

Tax advisory

Transfer pricing

US Aerospace Systems OEMTax advisory

Tax compliance

Transfer pricing

Transaction tax services

Risk advisory services

Indian DPSU Shipyard Business advisory

Formulation of business plan

and implementation procedure

Swiss Aircraft ManufacturerOffset advisory

Business advisory

Tax advisory

*Ranked as #1 brand in India for three consecutive editions of the biennial Global Brand Survey 2015 (Kantar), 2013 (TNS), 2011 (TNS)

© C

opyr

ight

201

6 Er

nst &

You

ng L

LP. A

ll rig

hts

rese

rved

.

Disclaimer: The information contained herein does not constitute an offer to sell or a solicitation of an offer or a recommendation to purchase securities under the securities laws of any jurisdiction, including the United States Securities Act of 1933, as amended, or any US state securities laws, or a solicitation to enter into any other transaction. Any securities transactions with a US-based buyer will be effected through Ernst & Young Corporate Finance (Canada) Inc., a US registered broker-dealer that is part of a global network with Ernst & Young LLP in accordance with Rule 15a-6 under the United States Securities Exchange Act of 1934, as amended.

Government & Nonprofit

Eye on Defence April 2016