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DEFENCE MANUFACTURING Growth and opportunities in India’s defence manufacturing industry

Aug 30, 2021

SM Vaidya, Executive Vice President and Business Head, Godrej Aerospace - India, lately, has increased its pace towards becoming self-reliant when it comes to manufacturing defence products. This can be attributed to various reasons, including growing India’s status as a defence manufacturer. The Government of India has taken various steps to enable this shift of power from being reliant on exports for defence products to becoming Aatmanirbhar on the front. In this article, Godrej Aerospace – a global leader in the aerospace sector offering precision machining, precision fabrication, welding and brazing, heat treatment, surface treatment, assembly testing and supply of complex and airworthy system – discusses the role of MSMEs, challenges and the policies in place that can help India shape its defence manufacturing platform.

The aerospace and defence sectors have gathered momentum lately with the defence reforms, and Indian companies are getting the opportunity to prove themselves through privatisation, driven by the government’s ‘Make in India’ initiative. Privatisation has the potential to introduce updated technologies and state-of-the-art capabilities, making India a major potential area for manufacturing activities.

The role and importance of MSMEs in defence & aerospace

MSMEs have also played a very important role in boosting Defence and Aerospace (D&A) manufacturing. About 80% of the parts and subassemblies are being manufactured by MSMEs. The government has undertaken various initiatives in order to provide opportunities for MSMEs in defence manufacturing. The revised definition for ‘MSME’ has also helped many industries reap the benefits of orders reserved for such companies.

Till recently, MSMEs were affected primarily due to the lack of funding, poor infrastructure, dearth of opportunities and lack of technology availability. To overcome this, the government has taken various initiatives to help MSMEs, including a dedicated fund of ₹50,000 crores, the disallowance of global tenders for procurement of up to ₹200 crores, DPSUs mandated to buy at least 25% of the total requirement from MSMEs, offset multiplier benefits and other liberal policies. Today, opportunities are available to participate in the Indian defence and space sectors as well as the global aerospace market. This is because of the cost reduction pressure or China exit policy, and this will keep the defence & aerospace industry sustainable and investments justified. Many of the state governments have declared various fiscal incentives for MSMEs, which include capital investment cash subsidies, interest subsidies, reimbursement of VAT, subsidy in power tariff and electricity duty, assistance for skill development etc. Setting up a project management unit to support contract management will help reduce delays in procurement.

Where India falls short & the influence of digital

Some of the other challenges constraining the growth of the Indian aerospace industry are the lack of raw materials being manufactured in India that meet global aerospace standards, non-availability of requisite machines and tooling, as well as the absence of certification bodies, agencies for meeting aerospace’s international standards, etc. Hence, the projects that are currently available to Indian manufacturers are low on technology, and most of them are for structural assemblies and parts. The government has increased the FDI limit in the D&A sector to 74% in specific technologies and 49% in all products, which will make OEMs comfortable transferring sophisticated technologies to their subsidiaries in India. The SRIJAN portal gives details of products or spares which currently are being imported by the MoD and DPSUs, and there is the opportunity for indigenisation with their annual import value & product specifications. Establishments like DGQA and DGAQA have made adequate changes in their way of providing quality assurance coverage for self-certifications to suppliers. With the increase in demand for exotic alloys, it will be economical heat batch for raw material suppliers, like MIDHANI, HINDALCO and others, making raw-material availability easier. Indian machine tool suppliers already have tie-ups with global machine tool associations; however, it’s a long way to go for PLC controllers where very few are dominating globally. It is similar for CAD/CAM/CAE software, where efforts are initiated through government labs; however, currently, we have options available in the market.

Digital technologies have also been significantly restructuring the nature of combat and the nature of business, and defence companies are slowly transforming nearly every aspect of how they operate in order to compete. But even as they do so, it is important for the defence companies to identify and prioritise the technologies and capabilities that align with their overall business strategy and R&D plan. In addition, companies need to engage the entire enterprise in these efforts, from products and services to production facilities to back-office functions.

The Technology Development Fund (TDF) scheme, launched by the government to encourage private sector participation, especially MSMEs, takes account of the indigenisation of defence products, subsystems and components. It can also be used for developing cutting-edge technology for defence applications. The major hurdles for any private sector, especially MSMEs for product development, are as follows:

  1. No funding for development & no long-term commitment.

  2. Unavailability of test facilities.

  3. L1 concept, irrespective of the quality.

The solutions in place

TDF is not only aimed at funding technology development but also addresses the above issues. The TDF encourages the industry to think about the product specifications that are feasible to manufacture. The greater weightage (about 95%) is given to technical & design capability and lesser to financials. The L1 concept does not exist here, and technically-sound companies are awarded projects. Of the total cost, 90% is borne by DRDO. The various monitoring groups like Project Monitoring and Mentoring Group (PMMG) and other technical committees support the company for all the technical and project management issues. The scheme allows consortium of industry to industry, academia and all the above. Another big advantage of this scheme is the industry and DRDO jointly holding the Intellectual Property Rights. The country needs Made in India products, and this scheme gives all the resources and support to the industry.

The newer prospects for the future

The DRDO recently also announced that it is gearing up to provide the Indian military with a dozen new indigenous weapons and systems over the next two years. The weapon systems that will be delivered to the military between 2021 and 2023 to strengthen its capabilities include Beyond Visual Range (BVR) missiles, India’s first anti-radiation missile, anti-tank weapons, anti-drone systems, guided bombs and anti-airfield weapons. This, combined with the centre’s decision to impose restrictions on the import of 101 weapons and military platforms, and the creation of a separate budget for domestic capital procurement in the current financial year, will open up newer growth opportunities in the sector for the near future.

Image Gallery

  • It is important for the defence companies to identify and prioritise the technologies and capabilities that align with their overall business strategy and R&D plan

  • SM Vaidya

    Executive Vice President and Business Head

    Godrej Aerospace

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