Uttar Pradesh Aerospace and Defence Manufacturing Policy 2018

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1 Uttar Pradesh Aerospace and Defence Manufacturing Policy Introduction Indian economy continues to be a bright spot in the world with an average GDP growth rate of 7% for last three years ( to ). The economy is looked upon as one of the world s fastest growing large economies reaping high demographic dividend. Manufacturing sector forms the base of this economic growth and India poises to be a manufacturing hub of global recognition. The global market size of Aerospace & Defence (A&D) sector is estimated to be around INR 64 Lac Crores (2016) in terms of revenue 1, and employs over 2 million people. India, with the 3 rd largest armed forces, 4 th largest Air force and 7 th largest Naval force in the world. Nonetheless, India is world s 6 th biggest military spender, making it a significant market for aerospace & defence manufacturing in the world India's Defence Expenditure (INR Crores*) Source: MoD, GoI and IDSA (*1USD=INR 65) (BE) India s Defence Budget has been continuously rising, and in Union Budget , Govt. of India allocated around INR 3.6 Lac Crores to Ministry of Defence, recording a 5% growth in defence budget between and The defence budget had a capital expenditure share of around 33%. As most requirements for defence related equipment are met by imports in India, huge opportunity exists for import substitution in the sector. On the basis of current capital purchase requirements, it is expected that the defence offset market in India can rise upto approximately INR Crores per annum in just next few years 2. 1 Marketline, Aerospace & Defense Global Industry Guide 2017, February Bihani, V. Impact Analysis of Indian Defence Offset Program, Indian Defence Review, November, P a g e

2 In order to bait this opportunity, Govt of India has issued Defence Procurement Procedure (DPP) 2016 under the over-arching framework of Make in India programme. This Defence offset Policy is acting as a major thrust to overcome hurdles of developing defence manufacturing in the country. The threshold of defence offset under the policy has been relaxed to INR 2000 Cr under buy and make category, thereby inviting more OEMs. The policy defines a new category with high priority called Indian Designed Developed and Manufactured (IDDM). 100% of the defence offset obligations have been claimed in , as against 63% between 2008 and With Defence sector open to 100% Foreign Direct Investment (FDI) through government route, and 49% FDI through automatic route, the sector has gained global attention. In recent years, defence exports in India have risen. Value of Defence exports by DPSUs, Ordnance Factories and Private Sector Companies (based on NOC issued) increased to INR 1105 Cr (provisional) in from INR 461 Cr in India s focus on indigenous manufacturing in the defence space is paying off as the Ministry of Defence over the last 2years unveiled several products manufactured in India. Defence licensing mechanism has been liberalised and made more transparent in India. Therefore, number of industrial licenses granted in the defence sector in recent years has been rising. Between 2014 and 2016, total 119 licenses have been issued, as against 214 licenses issued in 13years between 2001 and Similarly, Indian civil aviation industry is booming and is ranked amongst the top 10 countries in the world. Various reforms in aviation sector have also been announced to boost MRO/ FBO/ Cargo industry in the country. Aerospace sector is also undergoing a paradigm shift from capital acquisitions to indigenised manufacturing. Taking forward the Make in India vision of Government of India, State Government of Uttar Pradesh has launched its Civil Aviation Policy 2017 and Industrial Investment and Employment Promotion Policy (IIEPP) 2017, which is expected to create huge demand for the sector and boost investments in the state. The State is committed towards strengthening its foothold in Aerospace & Defence (A&D) sector so as to create a promising ecosystem to boost indigenised manufacturing of aerospace & defence systems, equipment and parts. 2. Advantage Uttar Pradesh Uttar Pradesh is India s 4 th largest state and 3 rd largest economy with an immense contribution towards India s manufacturing output. UP is amongst the top five manufacturing states of India and has the second highest number of Micro, Small and Medium Enterprises in India. The exports from the state recorded 13.26% CAGR in 3 Ministry of Defence, GoI and MoD, GoI Accomplishments Report, Refer 2 P a g e

3 last five years ( ). The State is emerging as a top industrial destination with investment friendly reformative policy approach. 4 th largest state, 3 rd largest economy Largest consumer base with 200 million population State has highest PPP infrastructure projects in India (15%) Amongst top 5 manufacturing states of India 2 nd highest number of MSMEs 13.26% growth in exports (CAGR) recorded in the state in last 5 years ( ). State has one of the largest rail networks spanning over 8,949kms, 8.5% of total National Highway network, 6,991 kms of State highways and 32% of National Waterway-1 catchment area. The State also has 8.5% of Delhi-Mumbai Industrial Corridor (DMIC) catchment area across 12 districts and 57% of Eastern Dedicated Freight Corridor (EDFC) catchment area. The National Waterway -1 (Allahabad-Haldia Inland Waterway) project, which is under-construction will largely benefit exporting hubs in Uttar Pradesh. The Multi modal logistics hubs, Industrial parks etc. are expanding in the state. The industrial panorama in the state is encouraging and reflects potential for considerable growth in the aerospace and defence (A&D) manufacturing sector Enabling Ecosystem a. Market Base There are 9-Ordnance factories in Uttar Pradesh which manufacture a range of products have been catering to the variable demand projected by the indenters over time. Ordnance Factory, Muradnagar, Ghaziabad Ordnance Factory, Kanpur Small Arms Factory, Kanpur Plain Carbon and alloy steel castings for tanks, ammunitions, steel forgings Medium & high calibre guns, shell empties Small arms. 3 P a g e

4 Field Gun Factory, High calibre ordnance & spare barrels, Kanpur.32 Revolver Ordnance Equipment Leather items, textile items, engineering Factory, Kanpur equipment including mountaineering items Ordnance Parachute Parachutes of different types. Factory, Kanpur Ordnance Clothing All combat clothing, textile and tent age items Factory, Shahjahanpur Ordnance Equipment Tents & other clothing items Factory, Hazratpur, Tundla Ordnance Factory, Korwa For production of carbines (At Project Stage). Source: Press Information Bureau There are 3-manufacturing units U.P of Hindustan Aeronautics Limited HAL Transport Aircraft Division, Kanpur HAL Accessories Division Lucknow HAL Avionics Division Korwa Core competence in manufacture, maintenance, modification and upgrade of light transport aircraft and trainer aircraft for both domestic and international markets. The division also carries out maintenance, repair and overhaul of aircraft, its rotables and undertakes servicing of engines and hydraulic systems of UAVs. Manufacturing of Hydraulics, Engine Fuel, Airconditioning and Pressurization, Flight Control, Wheel and Brake, Gyro & Barometric Instruments, Electrical Power Generation & Control System, Undercarriages, Oxygen and Electronic System, Fuel Content Gauges etc. Manufacturing & repair facilities for various avionics systems fitted on MiG-27M upgrade, mirage-2000, LCA, jaguar upgrade, AJT-HAWK aircraft. b. Connectivity Advantage Roads 48 National Highways, 8.5% of the total National Highway (NH) network 6,991Km of state highways Travel time to Agra from NCR reduced to 2.5 hours Located on Golden Quadrilateral Agra Lucknow Expressway Lucknow Ballia Expressway Four laning of district roads 4 P a g e

5 Inland Waterways Railways Approx 32% of National Waterway-1 (Allahabad-Haldia) catchment area Excellent existing metro infrastructure Upcoming Multi-city metro rail projects, coming up at Lucknow, Kanpur, Meerut, Varanasi Largest railway network in the country spanning over 8,949 km Aviation Major airports operational at Lucknow, Allahabad, Gorakhpur and Varanasi International airports at Varanasi and Lucknow connecting Middle East and South-east Asia. Upcoming international airport at Jewar and Kushinagar c. Logistics Infrastructure 5 P a g e

6 d. Homeland Security Rule of law is the top priority of the State Government, and the State has launched a special drive to control organised crime from the State. The Government has recently introduced UP Control of Organised Crime Bill, 2017 in the Assembly in this context. Uttar Pradesh has a wide base of police force, which is one of the largest in India, with sanctioned strength of 3.28 lacs Civil Police including District Armed Reserve Police and 36,245 State Armed Police 5 (2016). IT and engineering design has a crucial role to play to meet the modern needs of homeland security. This includes Police Modernisation, Intelligence, Safe City Surveillance, Critical Infrastructure, and Border Management. a. Support Base Presently, there are two R&D support bases in the state. One is the Aerospace Systems & Equipment R & D Centre (ASERDC), Lucknow under HAL, which is engaged in applied research, design & development of all major systems & equipment for aircraft, helicopter and engine using state of the art technology. Second is the Aerospace System and Equipment R&D Centre (ASERDC), Korwa under HAL, which is engaged in development of Flight Data Recorders and other Avionic LRUs. Further, there are 2- Forensics Science Laboratories in Uttar Pradesh at Lucknow and Agra, with 7-divisions aiding UP Police with modern technologies and equipment Opportunities in Uttar Pradesh Aircraft/ Helicopter Manufacturing/ Assembling Units Aviation Support Infrastructure Air Cargo, MRO Centres Defence Park at Kanpur and other districts such as Varanasi, Agra, GB Nagar. Aerospace Park at Jewar, Lucknow. Testing facilities - Development testing range for artillery and other military equipment Auto related components and Automobile manufacturing for military. Police modernization Safe City Surveillance Infrastructure Forensics Centres Drones Manufacturing and Testing facilities 5 Source : Indiastat 6 P a g e

7 3. About Policy This policy takes ahead the vision and objectives of State s Industrial Investment and Employment Promotion Policy 2017 (IIEPP 2017) and supplements State s Civil Aviation Policy The policy provides attractive incentives and aims to develop supporting ecosystem for a competitive A&D manufacturing industry in Uttar Pradesh. This policy provides strategic direction for development of the A&D sector in the state in next 5 years Objectives of the Policy 1. Make Uttar Pradesh one of the most preferred destinations for Aerospace & Defence manufacturing. 2. Attract mega Aerospace & Defence manufacturing projects & Defence Public sector Units (DPSUs) in the State 3. Promote establishment of new Aerospace & Defence clusters in order to promote development of a sectoral ecosystem. 4. Identify and address existing infrastructure gaps affecting Aerospace & Defence manufacturing industry. 5. Promote Research and Development in A&D sector and ensure continuous technology up gradation. 6. Encourage skill development in Aerospace & Defence domain 7. Promote private industrial parks catering to Aerospace and Defence manufacturing sectors Definitions 1. MSME Units: GoUP will follow the MSME definition laid out by Government of India for MSME as per MSME Act The definition for MSMEs will be revised automatically as per the guidelines of Government of India from time to time. 2. Large A&D Units: A large A&D undertaking having capital investment over and above as defined in MSME Act 2006 and capital investment a. Less than INR 300 crores in Bundelkhand & Poorvanchal Region, b. Less than INR 400 crores in Madhyanchal & Pashimanchal (except GB Nagar, Ghaziabad), c. Less than INR 500 crores in GB Nagar, Ghaziabad districts. 3. Mega A&D Units: A&D units that involve fixed capital investment of a. More than INR 300 crores or creating at least 1000 direct employment in Bundelkhand & Poorvanchal Region, b. More than INR 400 crores in Madhyanchal & Pashimanchal (except GB Nagar, Ghaziabad) or creating at least 1500 direct employment, c. More than INR 500 crores in GB Nagar, Ghaziabad districts or creating at least 1000 direct employment. 7 P a g e

8 4. Defence Public Sector Units investing more than INR 1000 crores 5. Anchor units: : Global / Indian Original Equipment Manufacturers (OEM) companies which design and manufacture A&D platforms with investments of at least INR 200 Cr and bring along at least 10 vendor units in the same cluster shall be treated as anchor unit. These Anchor Units should qualify that they have defence orders worth at least INR 50 crore or more. The definition of a defence order is a contract with the Ministry of Defence or the Ministry of Home Affairs (of Government of India) or their authorised equivalents in foreign countries or civilian aerospace supplier or an MRO facility 6. Vendor units: Units which are located in the same cluster as Anchor unit and supply at-least 75% of its end product to the Anchor units Period of Policy 1. This policy will come into effect on the date of its notification and will remain in force for the period of 5 years. 2. If at any stage a situation arises which necessitates any amendment or supersession of the policy, only the cabinet will be authorised to approve such amendments/ supersession. 3. In case of any amendment in this policy, if any package of incentives is already committed by the state government to any unit, will not be withdrawn and the unit will continue to remain entitled to the benefits. 4. Private Aerospace & Defence Park Govt of Uttar Pradesh will strive to set up Aerospace and Defence Parks in the state, especially in areas with strong ecosystem support. Districts like Kanpur, GB Nagar, Agra and Varanasi will be focused in this context. These parks will provide plug-andplay industrial infrastructure allowing companies to focus on their core business. These parks will have: 1) Manufacturing area (components, sub-components, sub-assemblies, aerospace parts) and SEZ 2) Testing centre 3) Hardware/Embedded Technology Centre 4) Technology innovation centre 5) Housing & Common facility centre Towards this, the Government of Uttar Pradesh will provide following incentives to private Aerospace & Defence Parks developed on or more than 100 acres of land in Bundelkhand & Purvanchal Region, 150 acres of land in Madhyanchal & Paschimanchal (except GB Nagar, Ghaziabad) and 200acres of land in GB Nagar & 8 P a g e

9 Ghaziabad districts, as under State s Industrial Investment and Employment Promotion Policy 2017 : 4.1. Interest subsidy in the form of reimbursement of interest of up to 50% of annual interest on the loan taken to buy land, calculated on the basis of prevalent circle rate, for 7 years subject to a maximum ceiling of INR 50 lacs per annum per A&D park Interest subsidy in the form of reimbursement of interest of up to 60% of annual interest for 7 years on the loan taken for building infrastructure in the A&D parks subject to INR 10 crore per year with an overall ceiling of INR 50 crore per A&D park Interest subsidy in the form of reimbursement of interest of up to 60% of annual Technology Innovation Centre, Testing Centres at the A&D parks subject to INR 5 crore per year with an overall ceiling of INR 30 crore per A&D park % exemption/ reimbursement on stamp duty on the purchase of land by the developer and 50% exemption on stamp duty to individual buyers (first) will be provided on purchase of plot in the A&D parks. 5. Incentives DPSUs, Mega and Large A&D units, MSME, Anchor and Vendor A&D units, as defined in this policy would be eligible for following incentives on case to case basis, as under UP s Industrial Investment and Employment Promotion Policy Capital Interest Subsidy in form of reimbursement to the extent of 5% per annum for 5 years on loan taken for procurement of plant & machinery, subject to INR 50 lacs per annum per unit Infrastructure Interest Subsidy - A&D units setup in the state, will for a maximum period of 5 years be reimbursed the amount of interest at the rate of 5% per annum payable on loan taken by them for developing infrastructural amenities for self-use like roads, sewer, water drainage, erection of power line, transformer and power feeder, subject to overall ceiling of INR 1 crore Industrial Research Subsidy to A&D units to the extent of 5% per annum for 5 years in the form of reimbursement on loan taken for industrial research, quality improvement and development of products by incurring expenditure on procurement of plant, machinery & equipment for setting up testing labs, quality certification labs and tool rooms, subject to an overall ceiling of INR 1 Crore Stamp Duty Exemption - 100% Stamp duty exemption for units set up in A&D sector in Bundlekhand & Poorvanchal Region, 75% stamp duty exemption to A&D units in Madhyanchal & Pashchimanchal Region (except GB Nagar, 9 P a g e

10 Ghaziabad), and 50% Stamp duty exemption to those set up in GB Nagar, Ghaziabad districts Electricity duty exemption - 100% exemption for 10years to all new A&D units set up in the state Tax reimbursement Upto 90% for SGST reimbursement for MSME units in A&D sector for 5years, 60% for SGST reimbursement to eligible Large A&D Units for 5years, and 70% reimbursement to Mega A&D units for 10years EPF Incentive - All such new A&D units set up in the state, which provide employment to 500 or more unskilled workers, shall be reimbursed 50% of Employer s contribution to EPF. And, additionally 10% of employer s contribution on direct employment to 200 skilled and unskilled workers will be reimbursed. Besides these, the eligible A&D units will be provided other incentives under this policy. These are listed below Tax incentive - For aircrafts which are brought in specifically for Maintenance, Repair or Overhaul (MRO) in Uttar Pradesh, 100% reimbursement of net SGST on all input material (excluding Aviation Turbine Fuel), for 10 years to all new A&D units Rebate on Transportation Charges A&D units shall be eligible for transfer subsidy of 50% of cost, up to a maximum of INR 2 Crores, on transportation of imported equipment, plant and machinery from logistics parks and harbour/port to the place of production in the state. This subsidy shall be applicable on transportation for projects whose contract value is greater than INR 50 Cr and up to the date of start of first year of production. A&D units shall be eligible for transfer subsidy of 30% of cost up to a maximum of INR 1 Crore on transportation of finished products from the unit to logistics parks, harbour/port for a period of 5 years from the date of start of commercial production Subsidy for setting up Effluent Treatment Plant (ETP) 60% Reimbursement of project cost of setting up ETP for A&D units upto maximum INR 1 crore in non-ncr region, and upto maximum INR 50lacs in NCR region Tech Transfer Subsidy Anchor units shall be reimbursed 100% of the cost of technology transfer for first 5 vendors and 50% for next 5 vendors, subject to maximum INR 50 lacs. 10 P a g e

11 6. R&D and Testing Facility Support For setting up R&D or testing facility, 10% subsidy on investment of more than INR 10 crore up to maximum INR 10 crore per investment, provided The centre should either have a direct order of at least INR 5 crore from the Ministry of Defence/ Ministry of Home Affairs/ equivalent foreign governments/ civilian aerospace supplier or an MRO facility; or The Centre should be providing services for a manufacturer which has a minimum of INR 50 crore order from the Ministry of Defence/ Ministry of Home Affairs/ equivalent foreign governments/ civilian aerospace supplier or an MRO facility. The criteria must fulfilled within 2years of the centre going live. 7. Building Market The MSME units in A&D sector will be eligible for reimbursement of 50% of cost of participation in international exhibitions/fairs, subject to maximum INR 5 lakh per exhibition/fair. In meeting its homeland security demands, Govt of Uttar Pradesh will give preference in procurement to state based A&D units. 8. Capacity Building 8.1. On-job training Incentive Institutions providing on-job training in A&D sector, would be reimbursed 50% of the cost of training subject to stipend of maximum INR per month per trainee, upto maximum 50 trainees per unit per annum Strengthening existing Skill training base - Wherever desired, A&D units shall be handed over identified Government I.T.I. for sector specific skill development as well as custom courses can also be introduced in these ITIs Academic tie-up Govt of Uttar Pradesh will encourage Universities (in India and abroad) with excellence in A&D training and research to tie up with universities in the State to enhance pedagogy and R&D culture Training centres at A&D Park The State Govt will encourage training institutions at A&D Parks. Institutions imparting training to about 1000 workers annually will be provided land at these parks. 11 P a g e

12 9. Patent Cost/ Quality Certification Govt of Uttar Pradesh proposes to provide financial assistance towards expenses incurred for patent registration and for quality certifications Patent Fee Reimbursement 100% reimbursement of patent fees for domestic patent registration, and 50% reimbursement of patent fees for international patent registration subject to maximum INR 25 lacs. The reimbursement would be granted only after grant of patents Quality certification Govt of Uttar Pradesh will provide financial assistance to MSME units in obtaining quality certification. 100% reimbursement of certification fees subject to maximum INR 2lacs for each certification Trademark registration Trade Mark registration application fees would be fully reimbursed, subject to maximum INR 25,000 per registration to all eligible A&D units. NOTE - A. The defence manufacturing units established through purchase of closed, sick, acquired/bifr/aaifr units shall be granted similar facilities as provided to the new units. B. All incentives in the form of reimbursement, subsidies, exemptions etc., will be subject to a maximum of 100% of fixed capital investment made in Poorvanchal and Bundelkhand, 90% of fixed capital investment made in Madhyanchal & Paschimanchal (except Gautambuddh Nagar & Ghaziabad districts) and 80% of fixed capital investment made in Gautambuddh Nagar & Ghaziabad districts, for MSME, Large and Vendor units in A&D sector. C. All incentives for eligible mega projects in the form of reimbursement, subsidies, exemptions etc., will be subject to a maximum of 300% of fixed capital investment made in Poorvanchal and Bundelkhand area of UP, 200% of fixed capital investment made in Madhyanchal, 100% in Paschimanchal (except Gautambuddh Nagar & Ghaziabad districts) and 80% of fixed capital investment made in Gautambuddhnagar & Ghaziabad districts, for Mega A&D Units, Anchor units and Defence Public Sector Units (DPSUs). 10. Ease of Business Single Window- All required approvals to A&D manufacturing units shall be provided under one roof through single window system of the state. For this, a dedicated Nodal officer shall be provided to all mega units, Anchor units, OEMs & DPSUs. 12 P a g e

13 10.2. Labour Permits - Govt of UP will permit A&D industry towards employment of women in 3-shifts, flexible employment conditions and working hours, and hiring of contractual workers, subject to the requisites of respective laws Quality Power - Govt of Uttar Pradesh is committed to supply 24X7 reliable, quality power to A&D industry as per provisions in Industrial Investment & Employment Promotion Policy Simplifying procedures - This policy ensures to rationalise existing regulatory regime and simply procedures by supporting self-certification, deemed approval and third party certification Industrial Security - Govt of Uttar Pradesh will provide safe and secure industrial environment in the state. 11. Policy Implementation Department of Infrastructure and Industrial Development will be nodal department for implementation and monitoring of this policy Policy Implementation Unit (PIU) will be set up under the Infrastructure and Industrial Development Commissioner and Principal Secretary, Department of Infrastructure and Industrial Development. The PIU shall take decisions on matters pertaining to effective and successful implementation of UP Aerospace & Defence Manufacturing Policy The Unit shall be responsible for providing recommendation and approval for incentives applicable to units defined under this policy, and shall provide timely grievance redressal. The Policy Implementation Unit will comprise of Nodal Officers from Department of Home Affairs, Department of Civil Aviation, Department of MSME and Export Promotion, and Department of Science & Technology Empowered Committee under the chairmanship of Chief Secretary/an officer delegated by him, shall oversee the development of UP Aerospace & Defence Manufacturing Policy 2018 and monitor the implementation of the same. The Principal Secretaries/Secretaries of different departments will be its member. Secretary of Infrastructure and Industrial Development Department will be the Coordinating Secretary of the Committee. Representatives of the Industry Associations will be invitee member. Note A&D units availing incentives from any other policy or those sanctioned by the departments of the State government, will also be entitled to avail incentives/benefits mentioned in this policy provided the same kind of benefits/incentives are not being availed from any other policy. 13 P a g e