Evaluating the impact of Covid-19 pandemic on India’s defence manufacturing

by Editorial

At a time when Covid-19 has affected the entire world and most of the sectors of Indian economy, the Ministry of Defence (MoD), Confederation of Indian Industry (CII), the Society of Indian Defence Manufacturers (SIDM) and other Micro, Small and Medium Enterprises (MSMEs) are evaluating the impact of Covid-19 on defence manufacturing in India to find a solution to deal with the same. Defence manufacturing in India not only affects the country’s economy but also the defence preparedness of Indian armed forces.

To discuss and deal with the same issue, Defence Minister Rajnath Singh is coordinating with all the concerned parties under the umbrella of MoD. To begin with, it’s important to understand how stakeholders have modified their support and role in this situation. For example, SIDM has accelerated the manufacturing of Defence Research and Development Organisation (DRDO) designed Personal Protective Equipment (PPE) kits, masks, ventilator parts in the field of defence industry by efficient coordination and channelisation.

Within two months, India has not only met our domestic demand, but MoD can also think of helping neighbouring countries in the coming time. In one such interaction held at the MoD earlier this week in which more than 800 defence MSMEs participated, Rajnath Singh termed MSMEs backbone of Indian economy that accelerate GDP growth, earn valuable foreign exchange through exports and provide employment opportunities.

Keeping MSMEs strong is one of the priorities of the government. He said, “There are more than 8,000 MSMEs, tiered partners of many of our organisations — ordnance factories, Defence Public Sector Undertakings (DPSUs) and service organisations. They contribute more than 20% of the total production of these organisations.” Acknowledging the hardships faced by the defence industry, Rajnath Singh also said, “Manufacturing sector has been affected the most due to lockdown and disruption in existing supply chains and the defence sector is no exception to this.

Rather, it can be said that the defence sector is more aggravated than other sectors as the only buyer of defence products is the government.” With many retired military officers in the organisation which has much deeper understanding of defence manufacturing in India, the SIDM has conducted many interactions with senior officials of the MoD and the Armed Forces since the lockdown came into force. This has given an opportunity to get to know the problems of defence industries and many suggestions for their prevention have also been received from SIDM.

To tackle these challenges, MoD has taken several steps for industries, especially MSMEs. Such as: extension of response dates of RFP/RFI, early clearance of pending payments, etc. In this crisis, several financial support measures have been announced by the government and RBI to reduce the financial burden of the defence industry in India.

These will provide some relief due to the availability of additional working capital, deferment in interest payments. The “Aatmanirbhar Bharat” campaign launched by PM Modi will provide many opportunities to Indian industry and will help in restoring millions of jobs. The PM has called for being “vocal for local” in this direction. In order to achieve this goal in defence sector in India, the industry will have to have our indigenous products, i.e. “vocal for local” in defence too.

There is no doubt that Indian defence MSMEs have a very important role in the goal of indigenous manufacturing, and in the goal of self-reliant India in the defence. Now let’s look at some of the measures announced by Finance Minister Nirmala Sitharaman under the Aatmanirbhar Bharat scheme which will have direct benefit for the industry dealing in Indian defence manufacturing sector.

To start with, collateral free loan of Rs 3 lakh crore for MSMEs — this will be effective in re-establishing about 45 lakh units and saving employment. Subordinate debt provision of Rs 20,000 crore has been announced for two lakh MSMEs, this will help stressed MSMEs. Equity infusion of Rs 50,000 crore will be provided through ‘Mother-Daughter Fund’ for the purpose of benefiting the needy MSMEs.

A Rs 10,000 crore ‚Fund of Funds‘ will be set up to help increase the capacity of these units and for marketing. The definition of MSME has been revised, so that MSMEs can be expanded. At the same time there will be no distinction between manufacturing and services sector MSMEs. In government contracts (procurements) of value Rs 200 crore or less, global tenders will not be allowed. This will help MSMEs to grow their business.

In the event of being unable to participate in trade fairs due to Covid-19, e-market linkages will be ensured. The government and PSUs will also ensure the clearance of all outstanding payments in the next 45 days. According to an estimate by the MoD’s defence production branch, these measures will help realise the target of achieving a $25 billion defence production by 2025.

The DPSUs have been asked to clear payments of MSMEs, and also announced that their production targets have not been scaled down. Chief of Defence Staff General Bipin Rawat has been emphasising that India should have its own defence industry for which the MSMEs will play an important role in placing India among the top ten nations in defence technologies.

At the end, the countries which are today’s world leaders in defence manufacturing have not taken much time to become self-reliant in defence and aerospace domains. For example, in the United States, the domestic defence industry developed within a short span of two years during World War II. If not fully, at least partially, India can do it too.

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