Domestic firms to get big slice of India’s $130 bn defence orders over next 8 years

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Over the next 7-8 years, India's defence modernization plan is projected at $130 billion and a significant chunk of this is expected to be placed with domestic manufacturers as part of the country’s Aatamnirbhar Bharat policy.</p>
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Dr. Srikar Reddy, Joint Secretary, Ministry of Commerce & Industry,  said on Tuesday that the government is taking several initiatives to encourage domestic manufacturing in the entire defence manufacturing value chain and reduce its external dependence for defence procurement under the vision of ‘Atmanirbhar Bharat’ enunciated by Prime Minister Narendra Modi.</p>
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"More than 460 licenses have so far been issued to private companies for production of defence equipment," Reddy said in his opening remarks at India MSME Defence Week organized by EEPC India. </p>
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He said that self-reliance in defence manufacturing can only be made possible with concerted efforts of defence PSUs, major private players and MSMEs.</p>
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Defence Minister Rajnath Singh had said last month at the Aero India 2021 event at the Yelahanka Air Force Station "During the period 2015-2020, defence exports grew from Rs 2000 crores to Rs 9000 crores. The aerospace sector has an important role to play if we have to reach our targets of domestic defence production of $25 billion and exports of $5 billion by 2025."</p>
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Reddy said local requirements and rising defence exports provide immense opportunity to engineering MSMEs to acquire economies of scale and become a formidable part of the global defence supply chain.</p>
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With the government promoting the private sector to play a key role in the country's defence sector, engineering MSMEs could seize the opportunity by being part of the indigenous defence ecosystem.</p>
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He noted that many engineering majors have diversified and joined the Defence sector.</p>
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In a series of reforms, the government has liberalized the FDI regime in the defence sector and eased regulations. The FDI under the automatic route for the defence sector has been increased to 74% and 100 % through the government route.</p>
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The government has laid out a clear plan to build an industry ecosystem to indigenize the imported components and sub-assemblies for defence equipment and platforms manufactured in India. As many as 5,000 such items are proposed to be indigenized by 2025.</p>
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"As India is emerging as the world’s largest nation by the middle of the next decade, it has become imperative for her to achieve Atma Nirbharta and global leadership in the critical defence technologies, not just in the interest of country’s security, but also in the larger economic interest," said EEPC India Chairman Mr Mahesh Desai delivering his inaugural address at India MSME Defence Week.</p>
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Mr Desai said that with due efforts of the Government, India made a quantum jump in India’s arms exports during the last decade.</p>
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According to the latest report by Sweden-based think tank Stockholm International Peace Research Institute (SIPRI), Indian arms exports have risen sharply by 228% between the two interval periods over the last decade i.e. 2011-15 & 2016-20. </p>
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Over the last few years the domestic defence manufacturing landscape has been witnessing a major transformation with the increasing participation of MSMEs in the defence manufacturing supply chain.</p>
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A broad estimate suggests there are over 24,000 MSMEs currently involved in the defence supply chain contributing from low value added to hi-tech cutting edge systems to the Defence forces.</p>
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The draft Defence Production and Export Promotion Policy 2020 has aimed to achieve exports of US$5 billion in aerospace and defence goods and services by 2025. This has created an unprecedented opportunity for international trade and collaborations in the defence sector for MSMEs.</p>
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Currently, MSMEs engaged in manufacturing defence items depend significantly on defence PSUs, Defence Research and Development Organisation (DRDO) etc. Ordnance factories outsource around 40% of their production in the form of components and sub-assembly requirements, mainly from MSMEs.</p>
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The country's defence manufacturing sector has wide and strong cross linkages which impacts their development through several manufacturing sectors such as automotive, textiles, optics, machine tools, communication and heavy & light engineering.</p>