India’s defence industry is now undergoing a dramatic change, with a strong emphasis on self-reliance and indigenisation. Micro, Small and Medium Enterprises, or MSMEs, have become the leading players in the defence manufacturing ecosystem of this country. This article attempts to uncover the various possibilities available for Indian MSMEs in defence sector component manufacturing by exploring the current scene, government efforts, challenges, and future possibilities.
The Current position of Defence Manufacturing in India
The defence industry has finally reached an annual record of almost ₹1.27 trillion in budget 2023-24, indicating a 16.7% increase over the last fiscal year. This also points to the fact that policies and initiatives for ‘Aatmanirbharta’ or self-reliance in terms of defence manufacturing have worked.
The very ambitious targets of the Union government in 2025 would cover near ₹1.75 lakh crore turnover for aerospace and defence manufacturing with exports of ₹35,000 crore. It opens up the supply chain to MSMEs as one of the important players in defence, further strengthening its position in an otherwise very promising global market.
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The Role of MSMEs in India’s Defence Sector
Their integration into the defense manufacturing ecosystem of India is now complete. As of January 2023, in India, defence production-associated MSMEs and startups number about 14000 and 329, respectively. These enterprises do not affect the industry significantly except as Tier-II, III, and IV suppliers to Defence Public Sector Undertakings like DPSUs, Ordnance Factory Board, and private Original Equipment Manufacturers.
MSMEs have a grave role in the defence field, which in no way can be less than overstated. It maximizes the manufacturing depth within the chain and is probably the best force multiplier for the Indian defence manufacturing sector. Innovation capabilities, the flexibility of meeting constantly shifting requirements, and cost-effective solutions prove that they are irreplaceable in the sector.
Government Initiatives and Policies Supporting MSMEs in Defence
The Indian government has put in place a handful of initiatives and policies for stimulating the involvement of MSMEs in defence manufacturing:
Make in India and Atmanirbhar Bharat Abhiyan: These programmes, being the flagship ones for the last two years, specifically focus on domestic manufacturing and reducing import dependence with the defence sector being one of the key focus areas under them.
Defence Acquisition Procedure (DAP) 2020: This policy primarily aims at adopting the procedures under procurement made from domestic vendors, besides having facilitator clauses about attracting foreign direct investment (FDI) in the defence sector.
Positive Indigenisation Lists: As a part of the Department of Military Affairs, five Positive Indigenisation Lists have been promulgated containing 5012 items which would be procured from domestic sources only.
Defence Equipment Production and Export Promotion Policy 2020 (DPEPP): This policy aims to provide focused and structured underpinnings to become self-reliant and for exports in defence production capabilities.
Scheme of Promotion of MSMEs in Defence: This scheme is essentially for making the MSMEs understand the requirements and expectations of defence, and also the facilitative measures and avenues introduced by the government for motivating them.
Innovation for Defence Excellence (iDEX): The initiative will build an ecosystem for creating innovations and technologies in Defence as well as aerospace.
SRIJAN Portal: This portal of indigenisation, so far contains more than 36,466 defence items uploaded on the portal for the indigenisation process.
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Opportunities for MSMEs in Defence Component Manufacturing
Component manufacturing has extensive opportunities for MSMEs in terms of defence:
- Import Substitutes in Component Manufacturing: With government keenness being increasingly evident in the direction of self-reliance, huge opportunities are opened up for MSMEs to capture the market for the manufacture of components but have so far been imported. The SRIJAN Portal contains thousands of such items.
- Setting up Industries by MSMEs in the Defence Industrial Corridors: The establishment of two dedicated Defence Industrial Corridors in Tamil Nadu and Uttar Pradesh is an attempt by the government to open up ways for MSME units to setup its manufacturing capabilities.
- Partnering with DPSUs and OEMs: MSMEs can assist Defence Public Sector Undertakings and Original Equipment Manufacture supply components and sub-systems in their operation.
- Export: As Indian defence exports are expected to touch an all-time high of Rs 21,083 crore in FY24, the seas have opened up for MSMEs to tap foreign markets.
- Emerging technologies: In artificial intelligence, robotics, autonomous systems, cybersecurity, and more, there are a chance for developing novel solutions by MSMEs meant for the defence Equipment market.
- Maintenance, Repair, and Overhaul: The increasing increase in the amount of defence equipment in India is likely to demand increasing MRO services that open up opportunities for MSMEs.
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Success Stories of MSMEs in Defence Manufacturing
Some MSME units are already taking big strides in defence equipment manufacturing:
- Logic Fruit Technologies: The company, which specializes in developing high-performance embedded computing solutions, has the capability to render contributions to defence.
- Paras Defence & Space Technology Limited: This company has now spent four decades and emerged as a key player in the Defence and Space landscape of India, focusing on all things indigenously designed, developed and manufactured (IDDM).
- Bharat Forge: The company has been able to manufacture artillery guns successfully, which proves the worth of private sector involvement in defence manufacturing.
Challenges Faced by MSMEs in Defence Manufacturing
Opportunities exist, but as always challenges abound for MSMEs in the defence sector:
Complex Procurement Process: The defence acquisition process is complex, time-consuming, and challenging for small enterprises.
High Barriers to Entry: The defence sector has high entry barriers in terms of technology, capital requirements, and defined quality standards.
Limited Access to Finance: Most MSMEs find it difficult to get funds for defence projects needing a substantial investment cost up front.
Technology Deficit: Keeping pace with advanced and available defence technologies becomes a challenge as these inputs are small enterprises with limited R&D budgets.
Information: Most MSMEs fall in a situation where they know neither the opportunities offered by the defence sector nor the methods of becoming a defence supplier.
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Strategies for MSMEs to Succeed in Defence Component Manufacturing
Following are a few strategies including defence component manufacturing in MSMEs, which can be focused on:
Focus on Niche Areas: Focusing on special components or tech where the enterprise would develop expertise and competitive advantage.
Invest in R&D: Continuously invest in research and developing the latest technological advancements of the defence sector.
Collaborate and Form Consortiums: Have partnerships with other MSMEs or larger companies to pool resources and capabilities for larger projects.
Leverage Government Schemes: Take full use of all the different government schemes and funding concerning MSMEs in the defence sector.
Enhance Quality Standards: Invest in quality systems and certification that meet all rigorous demands of the defence sector.
Participate in Defense Expos and Seminars: Attend and be learnt in networking and capability showcasing at the defense exposition so as to be aware of upcoming opportunities.
Skilled Workforce Development– Invest in training and skill development to establish a workforce capable of specialized needs for defense manufacturing.
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Future Outlook for MSMEs in Defence Manufacturing
The future looks bright for MSMEs in India’s defence sector. The more the government pushes with indigenization and the projected growth of the defence industry, all signs point toward a very active role that MSMEs will take on in the years to come. On top of it, the envisaged thrust on exports is expected to open up newer avenues for Indian MSMEs as the government has set an ambitious target for defense exports by Rs 35,000 crore by 2025, and this can provide significant opportunities to MSMEs involved in component manufacturing.
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Conclusion
The potential for Indian MSMEs to manufacture components for the defence sector is massive and continuous to increase. The Government’s strong focus on indigenization, various policy supports, rising defence budgets creates a window of opportunity for MSMEs where they can emerge into active players of the ecosystem of defence manufacturing.However, as with other areas, these opportunities come with challenges such as achieving new technology, raising finances, and working through very time-consuming and difficult procurement processes.
While competitive in innovation and quality, backed by strategic alliances, MSMEs will be able to play an important part in India’s self-reliance journey on defence manufacturing. As India continues to build up its defence capabilities and then emerges as a global manufacturing hub, MSMEs will be at the forefront of this transformation, being a critical part in spurring innovation, creating jobs, and contributing significantly to the economic growth and security of the nation.