Defence Ministry Issues New Guidelines For Start Ups

The Ministry of Defence has released new guidelines aimed at integrating Indian start-ups into military projects. These guidelines enable start-ups registered with the Department for Promotion of Industry and Internal Trade (DIPP) to engage in various defence-related fields, including aeronautics, nanotechnology, virtual reality, green technology, and the Internet of Things. The armed services have identified specific projects under the 'Make II' category to facilitate this initiative.

The Defence Procurement Procedure-2016 (DPP-2016) outlines two 'Make' sub-categories: Make-I (Government Funded), where the government funds 90% of the project in phases, and Make-II (Industry Funded), where private industry funds research and prototype development without initial government funding, but receives assurance of future orders pending successful development and trials. The new policy prioritizes weapon acquisition in the following order: Buy (Indian-IDDM), Buy (Indian), Buy and Make (Indian), Buy and Make (Global), and Buy (Global). IDDM stands for Indigenously Designed, Developed, and Manufactured.

Integrating Indian Start-ups into Defence: A New Era of Indigenous Military Production

India's Ministry of Defence took a significant step in 2019 towards fostering indigenous defence production by issuing new guidelines designed to facilitate the participation of Indian start-ups in military projects. This initiative marks a crucial juncture in the nation's ongoing efforts to reduce its reliance on foreign arms imports and cultivate a self-reliant defence industry. The move is strategically aligned with the broader "Make in India" campaign, aiming to transform India into a global manufacturing hub and boost domestic innovation.

The core of these guidelines revolves around enabling start-ups registered with the Department for Promotion of Industry and Internal Trade (DIPP) to actively engage in defence projects spanning a diverse range of technological domains. These include aeronautics, nanotechnology, virtual reality, green technology, and the Internet of Things (IoT), signaling a concerted effort to leverage cutting-edge technologies for military applications. The armed services have already identified several projects under the 'Make II' category to kickstart this initiative, providing a concrete pathway for start-ups to enter the defence sector.

To fully understand the significance of this policy shift, it is essential to delve into the intricacies of the Defence Procurement Procedure-2016 (DPP-2016) and the 'Make' procedure it outlines. The DPP-2016 serves as the overarching framework governing defence acquisitions in India, aiming to ensure transparency, efficiency, and, most importantly, indigenization. It provides a structured approach to procuring defence equipment and systems, emphasizing the need to promote indigenous design, development, and manufacturing (IDDM).

Within the DPP-2016, the 'Make' procedure stands out as a key mechanism for fostering indigenous defence capabilities. This procedure encourages Indian companies, including start-ups, to undertake research, development, and manufacturing of defence equipment and systems. It is divided into two sub-categories: Make-I (Government Funded) and Make-II (Industry Funded).

Under the Make-I category, the government provides financial assistance, typically covering up to 90% of the project cost in a phased manner. This category is generally reserved for projects involving complex technologies or those deemed strategically critical for national security. The government's financial commitment reduces the risk for participating companies and encourages them to invest in long-term research and development efforts.

The Make-II category, which is particularly relevant to the new guidelines for start-ups, operates on a different model. In this case, private industry, including start-ups, funds the research, development, and prototype development without upfront government funding. While there is no initial financial assistance from the government, companies participating in the Make-II category receive an assurance of orders upon successful development and trials of the prototype. This assurance provides a strong incentive for companies to invest their own resources in developing innovative defence solutions, knowing that they have a potential market for their products.

The prioritization of weapon acquisition is another critical aspect of the new policy. The policy establishes a clear hierarchy, favoring indigenous sources over foreign imports. The order of preference is as follows:

1. Buy (Indian-IDDM): This category gives the highest priority to the acquisition of defence equipment and systems that are Indigenously Designed, Developed, and Manufactured in India. This reflects the government's strong commitment to self-reliance in defence.

2. Buy (Indian): This category includes defence equipment and systems that are manufactured in India, even if the design and development may have originated from foreign sources. This encourages foreign companies to establish manufacturing facilities in India, transferring technology and creating jobs.

3. Buy and Make (Indian): This category involves the purchase of technology from foreign vendors, coupled with indigenous manufacturing in India. This allows Indian companies to gradually acquire the necessary skills and expertise to design and develop their own defence equipment and systems.

4. Buy and Make (Global): This category entails the purchase of defence equipment and systems from foreign vendors, with a provision for technology transfer and co-production in India. This is a more gradual approach to indigenization, allowing Indian companies to learn from foreign partners and eventually develop their own capabilities.

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5. Buy (Global): This category represents the traditional approach of directly purchasing defence equipment and systems from foreign vendors. This option is considered the least preferred, as it does not contribute to the development of indigenous defence capabilities.

The emphasis on IDDM underscores the government's determination to achieve complete self-reliance in defence. By prioritizing the acquisition of indigenously designed, developed, and manufactured weapons, the policy aims to create a vibrant ecosystem of defence innovation and production within India.

The Department for Promotion of Industry and Internal Trade (DIPP) plays a crucial role in this initiative by registering eligible start-ups. Registration with DIPP is a prerequisite for start-ups to participate in defence projects under the new guidelines. DIPP is a government body responsible for formulating and implementing policies for the promotion and growth of industry and internal trade in India. Its registration process ensures that start-ups meet certain criteria and have the necessary capabilities to contribute to the defence sector.

The Ministry of Defence, as the primary government body responsible for overseeing the country's defence and military affairs, is at the forefront of this policy shift. The Ministry has the authority to issue directives and allocate funds for defence projects. However, its actions are subject to government regulations and budgetary constraints. The Ministry's role is to create a conducive environment for start-ups to participate in defence projects and to ensure that the projects align with the nation's defence needs.

Historical Context and the Evolution of Defence Procurement

To fully appreciate the significance of the 2019 guidelines, it's crucial to understand the historical context of India's defence procurement policies and the evolution of its approach to indigenous defence production. For decades, India has been heavily reliant on foreign arms imports, making it one of the world's largest arms importers. This dependence has been a source of concern for successive governments, as it undermines national security and strategic autonomy.

In the past, India's defence procurement processes were often characterized by delays, inefficiencies, and a lack of transparency. This led to several revisions of the Defence Procurement Procedure (DPP) over the years, each aiming to address these shortcomings and promote indigenization. The DPP-2016 was a significant step forward in this direction, incorporating provisions for encouraging indigenous design, development, and manufacturing.

Previous initiatives to promote indigenous defence production have included the establishment of defence public sector undertakings (DPSUs) and the promotion of private sector participation in defence manufacturing. However, these efforts have had limited success in reducing India's dependence on foreign arms imports. The involvement of start-ups in defence projects represents a new approach, leveraging the innovative potential of the Indian start-up ecosystem.

Stakeholder Perspectives and Potential Challenges

The new guidelines for start-ups in defence have been met with generally positive reactions from various stakeholders. The Indian government views this initiative as a key component of its broader strategy to promote indigenous defence production and reduce reliance on foreign imports. The government's underlying interests include enhancing national security, boosting the domestic economy, and fostering technological innovation. To achieve these goals, the government has been actively issuing new guidelines, prioritizing IDDM, and providing funding for defence projects.

Indian start-ups, on the other hand, see this as an opportunity to access new markets, secure funding, and develop innovative technologies. Their official position is to actively participate in defence projects and contribute to indigenous defence production. They have been taking steps to register with DIPP and participate in defence projects under the 'Make II' category.

However, the path to integrating start-ups into the defence sector is not without its challenges. One potential challenge is the lack of experience and expertise among start-ups in dealing with the complex requirements of the defence industry. Defence projects often involve stringent quality standards, rigorous testing procedures, and strict adherence to regulations. Start-ups may need to invest in training and infrastructure to meet these requirements.

Another challenge is the limited access to funding for start-ups in the defence sector. While the Make-II category does not provide upfront government funding, start-ups may still need access to capital to finance their research, development, and prototype development efforts. The government and private investors need to create mechanisms to provide funding to start-ups in the defence sector.

Broader Implications and Future Outlook

The integration of start-ups into the defence sector has far-reaching implications for India's political, diplomatic, security, economic, and technological landscape.

• Political: Strengthening India's strategic autonomy and reducing dependence on foreign powers. By developing indigenous defence capabilities, India can reduce its vulnerability to external pressures and enhance its ability to pursue its foreign policy objectives independently.

• Diplomatic: Enhancing India's image as a self-reliant nation in defence. A strong and self-reliant defence industry can project an image of strength and credibility on the international stage, enhancing India's diplomatic influence.

• Security: Boosting India's defence capabilities and promoting indigenous defence technology. The involvement of start-ups in defence projects can lead to the development of innovative defence technologies and enhance India's military capabilities.

• Economic: Creating new jobs and opportunities in the defence sector. The growth of the indigenous defence industry can create new jobs in manufacturing, research and development, and related services, contributing to economic growth and development.

• Technological: Fostering innovation and technological advancements in the defence sector. Start-ups are known for their innovative spirit and their ability to develop disruptive technologies. Their involvement in the defence sector can lead to breakthroughs in defence technology and enhance India's technological competitiveness.

Looking ahead, the future outlook for the integration of start-ups into the defence sector is promising. Increased participation of start-ups in defence projects is expected, leading to further technological advancements in the defence sector and greater self-reliance in defence production. The government is likely to continue to refine its policies and procedures to create a more conducive environment for start-ups in the defence sector.

The Role of Defence Procurement Procedure (DPP)

The Defence Procurement Procedure (DPP) is the cornerstone of India's defence acquisition process. It is a comprehensive document that outlines the policies, procedures, and guidelines for procuring defence equipment, systems, and services for the Indian Armed Forces. The DPP aims to ensure transparency, accountability, efficiency, and indigenization in defence procurement.

The DPP has undergone several revisions over the years to address emerging challenges and incorporate best practices. The DPP-2016, which was in effect at the time of the 2019 guidelines, represented a significant step forward in promoting indigenous defence production. It introduced several new provisions and incentives to encourage Indian companies, including start-ups, to participate in defence projects.

Key features of the DPP-2016 included:

• Prioritization of IDDM: The DPP-2016 gave the highest priority to the acquisition of defence equipment and systems that are Indigenously Designed, Developed, and Manufactured in India. This reflected the government's strong commitment to self-reliance in defence.

• 'Make' Procedure: The DPP-2016 included a 'Make' procedure, which encouraged Indian companies to undertake research, development, and manufacturing of defence equipment and systems. The 'Make' procedure was divided into two sub-categories: Make-I (Government Funded) and Make-II (Industry Funded).

• Offsets Policy: The DPP-2016 included an offsets policy, which required foreign vendors to invest a portion of the contract value in India. This policy aimed to promote technology transfer, create jobs, and boost the domestic defence industry.

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• Simplified Procedures: The DPP-2016 aimed to simplify defence procurement procedures and reduce delays. This included streamlining the approval process, reducing the number of documents required, and introducing online portals for various procurement activities.

The DPP has been further revised in subsequent years, with the latest version incorporating even greater emphasis on indigenization and ease of doing business. These revisions reflect the government's ongoing commitment to creating a vibrant and self-reliant defence industry in India.

The 'Make in India' Initiative and Defence

The 'Make in India' initiative, launched by the Indian government in 2014, aims to transform India into a global manufacturing hub and boost domestic innovation. The initiative covers a wide range of sectors, including defence. The government recognizes that a strong and self-reliant defence industry is essential for national security and economic growth.

The 'Make in India' initiative has played a significant role in shaping India's defence procurement policies. The DPP-2016, with its emphasis on IDDM and the 'Make' procedure, was a direct outcome of the 'Make in India' initiative. The government has also taken several other steps to promote 'Make in India' in the defence sector, including:

• Relaxing FDI norms: The government has relaxed foreign direct investment (FDI) norms in the defence sector, allowing greater foreign investment in Indian defence companies. This aims to attract foreign technology and expertise to India.

• Promoting defence industrial corridors: The government is establishing defence industrial corridors in various parts of the country. These corridors aim to create a conducive ecosystem for defence manufacturing, attracting investment and promoting innovation.

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• Providing incentives to domestic manufacturers: The government is providing various incentives to domestic defence manufacturers, including tax benefits, subsidies, and preferential treatment in procurement.

The 'Make in India' initiative has had a positive impact on the Indian defence industry. Domestic defence production has increased, and several foreign companies have established manufacturing facilities in India. However, there is still much work to be done to achieve complete self-reliance in defence.

The Role of Start-ups in Defence Innovation

Start-ups are increasingly recognized as a key source of innovation in various sectors, including defence. Start-ups are typically small, agile, and entrepreneurial companies that are focused on developing innovative products and services. They are often more willing to take risks and experiment with new technologies than larger, more established companies.

The Indian government recognizes the potential of start-ups to contribute to defence innovation. The new guidelines for start-ups in defence are a testament to this recognition. By encouraging start-ups to participate in defence projects, the government aims to tap into their innovative potential and accelerate the development of new defence technologies.

Start-ups can contribute to defence innovation in several ways:

• Developing disruptive technologies: Start-ups are often at the forefront of developing disruptive technologies that can transform the defence sector. These technologies can include artificial intelligence, robotics, nanotechnology, and cybersecurity.

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• Improving existing technologies: Start-ups can also improve existing defence technologies by making them more efficient, cost-effective, and user-friendly.

• Developing new applications for existing technologies: Start-ups can develop new applications for existing technologies in the defence sector. For example, they can use commercial technologies to develop new surveillance systems or communication networks.

• Providing innovative solutions to defence challenges: Start-ups can provide innovative solutions to the challenges faced by the defence sector. For example, they can develop new methods for detecting and countering cyberattacks or for improving the safety and security of military personnel.

The involvement of start-ups in defence innovation can lead to significant benefits for the Indian defence sector, including:

• Faster development of new technologies: Start-ups can accelerate the development of new defence technologies by bringing their innovative ideas and agile development processes to the table.

• Lower costs: Start-ups can often develop new technologies at a lower cost than larger, more established companies.

• Greater innovation: Start-ups can bring a fresh perspective and a willingness to experiment to the defence sector, leading to greater innovation.

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• Increased competitiveness: The involvement of start-ups can make the Indian defence sector more competitive on the global stage.

Challenges and Opportunities for Start-ups in Defence

While the new guidelines for start-ups in defence offer significant opportunities, they also present several challenges. Start-ups need to be aware of these challenges and take steps to overcome them in order to succeed in the defence sector.

Some of the key challenges for start-ups in defence include:

• Lack of experience and expertise: Start-ups often lack the experience and expertise in dealing with the complex requirements of the defence industry. Defence projects often involve stringent quality standards, rigorous testing procedures, and strict adherence to regulations.

• Limited access to funding: Start-ups may have limited access to funding to finance their research, development, and prototype development efforts.

• Bureaucracy and red tape: The defence sector is often characterized by bureaucracy and red tape, which can make it difficult for start-ups to navigate the procurement process.

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• Competition from established players: Start-ups face competition from larger, more established companies in the defence sector.

• Security concerns: Defence projects often involve sensitive information and technologies, which can raise security concerns for start-ups.

To overcome these challenges, start-ups need to:

• Develop strong partnerships: Start-ups need to develop strong partnerships with established companies, research institutions, and government agencies. These partnerships can provide them with access to expertise, funding, and market opportunities.

• Focus on niche areas: Start-ups should focus on niche areas where they have a competitive advantage. This can help them to differentiate themselves from larger players and increase their chances of success.

• Develop innovative solutions: Start-ups need to develop innovative solutions to the challenges faced by the defence sector. This can help them to attract funding and secure contracts.

• Comply with regulations: Start-ups need to comply with all relevant regulations and standards in the defence sector. This can help them to build trust with customers and partners.

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• Protect their intellectual property: Start-ups need to protect their intellectual property by filing patents and trademarks. This can help them to maintain their competitive advantage and prevent others from copying their innovations.

Despite the challenges, the opportunities for start-ups in defence are significant. The Indian government is committed to promoting indigenous defence production and is actively encouraging start-ups to participate in defence projects. By overcoming the challenges and seizing the opportunities, start-ups can play a key role in shaping the future of the Indian defence sector.

The Importance of Technology Transfer

Technology transfer is a critical component of India's efforts to build a self-reliant defence industry. Technology transfer involves the transfer of knowledge, skills, and technologies from foreign vendors to Indian companies. This can help Indian companies to acquire the necessary capabilities to design, develop, and manufacture their own defence equipment and systems.

The DPP includes provisions for technology transfer in defence procurement contracts. Foreign vendors are often required to transfer technology to Indian companies as part of the offsets policy. The government also encourages joint ventures and collaborations between Indian and foreign companies to promote technology transfer.

Technology transfer can take several forms, including:

• Licensing agreements: Foreign vendors can license their technologies to Indian companies, allowing them to manufacture and sell the products in India.

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• Technical assistance: Foreign vendors can provide technical assistance to Indian companies, helping them to develop and manufacture their own products.

• Training programs: Foreign vendors can conduct training programs for Indian engineers and technicians, helping them to acquire the necessary skills to work in the defence industry.

• Joint research and development: Indian and foreign companies can collaborate on joint research and development projects, sharing knowledge and expertise.

Effective technology transfer can lead to several benefits for the Indian defence sector, including:

• Increased indigenous production: Technology transfer can help Indian companies to increase their indigenous production of defence equipment and systems.

• Improved quality: Technology transfer can help Indian companies to improve the quality of their products and services.

• Reduced dependence on foreign imports: Technology transfer can help India to reduce its dependence on foreign arms imports.

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• Enhanced technological capabilities: Technology transfer can help to enhance the technological capabilities of the Indian defence industry.

• Job creation: Technology transfer can create new jobs in the Indian defence sector.

The Future of Indian Defence: A Vision of Self-Reliance

The new guidelines for start-ups in defence represent a significant step towards realizing India's vision of a self-reliant defence industry. By encouraging start-ups to participate in defence projects, the government aims to tap into their innovative potential and accelerate the development of new defence technologies.

The future of Indian defence is likely to be characterized by:

• Increased indigenous production: India is expected to significantly increase its indigenous production of defence equipment and systems in the coming years.

• Greater private sector participation: The private sector is expected to play an increasingly important role in the Indian defence sector.

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• Enhanced technological capabilities: The Indian defence industry is expected to significantly enhance its technological capabilities in the coming years.

• Reduced dependence on foreign imports: India is expected to significantly reduce its dependence on foreign arms imports.

• A more competitive defence sector: The Indian defence sector is expected to become more competitive on the global stage.

To achieve this vision, the Indian government needs to continue to:

• Promote indigenous defence production: The government needs to continue to promote indigenous defence production through policies and incentives.

• Encourage private sector participation: The government needs to encourage private sector participation in the defence sector.

• Invest in research and development: The government needs to invest in research and development to promote innovation in the defence sector.

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• Streamline procurement procedures: The government needs to streamline procurement procedures to reduce delays and inefficiencies.

• Promote technology transfer: The government needs to promote technology transfer from foreign vendors to Indian companies.

By taking these steps, India can achieve its vision of a self-reliant defence industry and ensure its national security and economic prosperity.

The initiative to integrate start-ups into the defence sector is not merely a tactical adjustment but a strategic realignment of India's defence posture. It acknowledges the limitations of relying solely on traditional defence contractors and recognizes the disruptive potential of innovation emanating from the start-up ecosystem. This shift represents a fundamental change in mindset, embracing agility, adaptability, and a willingness to experiment with unconventional solutions.

The success of this initiative hinges on the creation of a supportive ecosystem that fosters collaboration between start-ups, established defence companies, research institutions, and government agencies. This ecosystem should provide start-ups with access to funding, mentorship, technical expertise, and market opportunities. It should also create a level playing field, ensuring that start-ups have a fair chance to compete with larger, more established players.

Furthermore, the government needs to address the regulatory and bureaucratic hurdles that often hinder innovation in the defence sector. Streamlining procurement processes, reducing red tape, and creating a more transparent and predictable regulatory environment are essential for attracting start-ups to the defence sector and encouraging them to invest in long-term research and development efforts.

The integration of start-ups into the defence sector also requires a cultural shift within the defence establishment. Traditionally, the defence sector has been characterized by a risk-averse culture, with a preference for proven technologies and established suppliers. To embrace innovation, the defence establishment needs to become more open to experimentation, more willing to take risks, and more accepting of failure.

This cultural shift requires leadership from the top, with senior defence officials championing innovation and actively supporting start-ups. It also requires the creation of mechanisms for identifying, evaluating, and adopting innovative solutions developed by start-ups.

The journey towards a self-reliant defence industry is a long and arduous one, but the integration of start-ups into the defence sector represents a significant step in the right direction. By embracing innovation, fostering collaboration, and creating a supportive ecosystem, India can unlock the full potential of its start-up ecosystem and build a defence industry that is both technologically advanced and economically competitive.

The initiatives to encourage the IDDM is a strategic move by the Indian government to enhance its defense capabilities while simultaneously boosting its domestic economy. This approach not only aims to reduce reliance on foreign arms imports but also fosters technological innovation and creates new jobs within the country. By prioritizing the procurement of indigenously designed, developed, and manufactured defense equipment, the government is sending a clear signal to both domestic and international players about its commitment to self-reliance in defense.

One of the key benefits of promoting IDDM is the potential for technology transfer. When foreign vendors are required to transfer technology to Indian companies as part of defense procurement contracts, it enables Indian firms to acquire the knowledge and expertise necessary to design, develop, and manufacture their own defense equipment. This, in turn, leads to increased indigenous production, improved quality of products, and reduced dependence on foreign imports.

Furthermore, the focus on IDDM can stimulate economic growth by creating new jobs and opportunities within the defense sector. As Indian companies become more capable of producing their own defense equipment, they will require a skilled workforce to support their operations. This will lead to increased demand for engineers, technicians, and other professionals, creating new employment opportunities for Indian citizens.

However, there are also challenges associated with promoting IDDM. One of the main challenges is the need for significant investment in research and development (R&D). Developing cutting-edge defense technologies requires substantial financial resources and a long-term commitment to innovation. The government needs to provide adequate funding for R&D initiatives and create a conducive environment for private sector investment in this area.

Another challenge is the need for a skilled workforce. The Indian defense industry needs a pool of highly skilled engineers, technicians, and other professionals to support its operations. The government needs to invest in education and training programs to ensure that the country has the workforce it needs to compete in the global defense market.

Despite these challenges, the benefits of promoting IDDM far outweigh the costs. By investing in R&D, developing a skilled workforce, and creating a conducive environment for private sector investment, India can build a self-reliant defense industry that is both technologically advanced and economically competitive. This will not only enhance the country's national security but also contribute to its economic growth and prosperity.