The Indian government has accelerated efforts to modernize and enhance the operational capabilities of its defense forces. This year, the nation’s defense budget is projected to show growth of 7.81%.
Finance Minister Arun Jaitley has said the government will also bring out an industry-friendly defense-production policy for 2018 aimed at promoting indigenous production by the public and private sectors, including micro small and medium enterprises, or MSMEs. After opening up private investment and liberalizing foreign direct investment (FDI) in defense production, the government plans to establish defense industrial corridors in the country, with the first to be built in the Tamil Nadu state.
In the last three-and-a-half years, a number of Indian states have replicated the model of the biennial investors’ Vibrant Gujarat summit in order to attract global investment and industries in their states, which is crucial for the development and job creation. A number of global investor summits have taken place, including GIS Madhya Pradesh, Resurgent Rajasthan Partnership Summit, Momentum Jharkhand, UP Investor Summit, Happening Haryana, North East Investors Summit, Invest Karnataka and Sunrise Andhra Pradesh Investment Meet. This year started with Bengal Global Summit, Advantage Assam and Magnetic Maharashtra. For the first time, Indian states are launching policies to ease business regulations and promote indigenous defense manufacturing.
A few days back, the Maharashtra government approved a defense and aerospace production policy. The state government will create Rs 1,000 crore (approximately $150 million) in initial working capital to the small-to-medium enterprises, or SMEs in those sectors. Under its defense and aerospace policy, the government plans to establish “defense hubs” at Pune, Nagpur, Ahmednagar, Nashik and Aurangabad. The state will offer financial concessions and incentives to develop indigenous defense technologies and to establish “anchor units” to build an ecosystem for defense MSMEs. Other states such as Uttar Pradesh and Tamil Nadu are also drafting their aerospace and defense manufacturing policy too. The Uttar Pradesh government is planning to develop defense manufacturing clusters in the state.
Encouraging the start-ups and SME participation in the indigenous defense manufacturing is a key priority of the Defense Ministry. On January 16, the Defense Acquisition Council, chaired by Defense Minister Nirmala Sitharaman, announced a revised and simplified “Make II” procedure, in which some special provisions are given to MSMEs. The Ministry, in cooperation with the Federation of Indian Chambers of Commerce and Industry, or FICCI, has launched a platform called “Society for Indian Defense Start-ups,” or SIDS, as an institutional-support mechanism for development and funding of defense start-ups.
THE DPSUs and Defense Research and Development Organization (DRDO) labs will also collaborate with FICCI to nurture the MSMEs with the relevant expertise. For the first time, a number of Indian defense start-ups have made their presentations before the defense minister. Such initiatives reflect the government’s readiness to give Indian defense start-up and SMEs a much-needed push.
A number of Indian MSMEs used to serve as the suppliers to DPSUs and are the key players behind the success of some major defense manufacturing projects.
According to the Dhirendra Singh Committee’s report (a committee set up by India’s Ministry of Defense in 2015), almost 80% of components, aggregates and assemblies of complex weapon systems and aircraft are made by MSMEs, which are part of supply chains. According to this report, nearly 6000 MSMEs in India are supplying the components and sub-assemblies to the DPSUs, ordnance factories, DRDO and private industries.
The access to markets, non-recovery of dues from large-scale buyers and lack of adequate and timely finance are some of the most talked about challenges among SMEs. In the Indian union budget for 2018, the government has addressed these issues with specific measures. The government has proposed to bring public-sector banks and corporations onboard the Trade Receivable Discounting System (TReDS) platform and link this with the Goods and Services Tax Network, or GSTN. The TReDS is an online platform which was launched last year to facilitate the financing of trade receivables of MSMEs. The government has provided Rs 3794 crore (about $600m.) for giving credit support, capital and interest subsidy to MSMEs. The government will take some additional measures for addressing the non-performing assets and stressed accounts of MSMEs too. The target of lending under MUDRA Yojana has been extended to Rs 3 lakh crore. From this year, NBFCs (Non-Banking Finance Companies) will also facilitate MUDRA loans for MSMEs. The MUDRA scheme was launched by the Indian government to provide easy finance to entrepreneurs from rural and remote areas.
After implementing a series of efforts and structural reforms over the course three-and-a-half years now, the government is fast-tracking defense-production efforts. On February 13, the Defense Acquisition Council of India approved capital acquisition proposals of Rs 15,935 crores. The DAC has fast-tracked the procurement of the assault rifles, sniper rifles, light machine guns and advanced torpedo-decoy systems for warships. According to a press release, the assault rifles will be made in India under the category of “Buy and Make Indian,” through both the Ordnance Factory Board and private players.
THE HIGH-PRECISION weapons will be bought with the “Buy Global” category. The ammunition for these will be initially procured and subsequently manufactured in India.
The Government e-Marketplace (GeM) is one of the bold steps of the Indian government. The GeM (launched in 2016) aims to transform the way in which procurement of goods and services is done by government ministries and departments, PSUs, autonomous bodies, etc. This platform has a great potential to support “Make in India” drive, MSMEs, and indigenous defense manufacturing process. On January 30, its upgraded GeM 3.0 version was launched. The GeM 3.0 would offer standardized and enriched catalogue management, a powerful search engine, real-time price comparison, template-based bid and RA creation, demand aggregation, e-EMD, e-PBG, user rating, advanced MIS, analytics and more.
Israel’s defense-tech industry is famous for delivering operationally proven cutting-edge technologies. In Israel’s defense industry, the contribution of the SME sector is significant. Despite relatively low numbers, these SMEs provide added value to the larger firms. These SMEs offer prompt innovative and flexible solutions to urgent needs. In 2014, the SME department of SIBAT (a department of the Israeli Defense Ministry that regulates defense sales by managing licensing and export controls) took initiatives to promote their country’s defense SMEs in the international markets. India’s defense manufacturing push has created a plethora of new opportunities. The Israeli defense SMEs can join hands with the Indian defense manufacturing SMEs to tap into these opportunities.
In the joint statement issued during Prime Minister Benjamin Netanyahu’s India visit, both countries reasserted the desire for co-production in the defense sector and for developing new business models of joint ventures, including joint manufacturing. In the coming days, it is expected that the engagement between the public and private sectors of both sides will accelerate. On the sidelines of Netanyahu’s visit, the head of SIBAT, the International Defense Cooperation Directorate of Israel’s Defense Ministry and officials from India’s Department of Defense Production held a discussion to explore the possibilities of collaboration in defense manufacturing.
The Indian government is determined to push indigenous defense manufacturing and the MSME sector. This is the right time for India’s defense partner Israel to align its collaborative approach with this new reality. India’s indigenous defense manufacturing push is an opportunity. Israel should improvise creatively to leverage this opportunity. The India-Israel defense SMEs collaboration can be the next move in this partnership.
The writer promotes advanced technologies, start-up ecosystems and the Indian government’s business and technology-related initiatives, such as Digital India, Make in India, Smart Cities and Start-up India.