Under Prime Minister Narendra Modi’s ‘Make in India’ scheme, one of the major objectives is to make India self-reliant in defence technology. India’s military modernisation plans are growing with day to day increasing threats and demands for newer technologies to strengthen the security apparatus of the country. This requires India to focus more on research and development, and for innovation and indigenisation it requires a separate budget allocation. To make India self-reliant, the purpose should be to promote innovation in defence technologies so that to find credible solutions for security related problems.
One of the sectors that took active interest in transforming India’s defence innovation and reformation was the Micro, Small and Medium Enterprises (MSMEs). Under the government’s motivation and fiscal stimulus, MSMEs ventured into innovation in defence technology and find credible solutions. However, owing to the Covid-19 pandemic that has hit global economy, Indian MSMEs, including the ones working on defence innovation have been hit hard financially. Liquidity stretch has been adversely affected these MSMEs that have been working on defence related solutions. This has been a concerning factor especially as India saw a 21 per cent increase in MSMEs from 2019 to 2020 in the domestic defence production sector. Number of MSME vendors in 2020 has increased to 10,506 in 2020 from 8,643 in 2019.
However, as India grapples with Covid-19, Prime Minister Narendra Modi has urged the country to become self-reliant under its ‘Atmanirbhar Bharat’ scheme and announced Rs 20 lakh crore economic stimulus packages for small and medium enterprises. One of the worst hit MSMEs are the ones that are working on defence innovation due to lockdown and disruption of supply chain as the government is the only buyer as pointed out by Defence Minister Rajnath Singh.
Finance Minister Nirmala Sitharaman has come out with several economic measures to boost the MSME sector viz. providing financial packages, early release of payment of pending dues by Defence Public Sector Undertakings (DPSUs), increasing foreign direct investment in defence manufacturing from 49 per cent to 74 per cent and also categorically notifying the list of weapon systems and equipment that cannot be imported. These reforms could help India achieve its target of US$25 billion worth defence manufacturing in aerospace and defence by 2025. Disruption of supply chain is being treated as Force Majeure and provisions for Force Majeure would be implemented wherever it would be required to revive the MSMEs.
The Defence Procurement Procedure (DPP) 2020 released by the Ministry of Defence (MoD) have also committed itself for making procurement policies more efficient, and various reforms to be undertaken in indigenous innovation. There are mechanisms for improving defence innovations by setting up innovation contests, and accepting unsolicited bids from the industry. Not just this, focus is also on innovation of indigenous materials required for defence and aerospace. In July 2020, MSMEs would become prime vendors in the defence equipment procurement by the government approved by Defence Acquisition Council (DAC).
This would help defence equipment being manufactured in India itself with help of establishments like Defence Research and Development Organisation (DRDO) for transfer of technology.
One of the silver lining factors amid the Covid-19 is that the defence companies such as Bharat Electronics Limited (BEL) and Ordnance Factory Board (OFB), and many private companies are developing Covid-19 related equipment. For instance, BEL is making ventilators while OFB is making Personnel Protective Equipment (PPE), masks, sanitizers to cope with the growing demand in the market and survive in the industry by generating jobs for the existing employees.
MSMEs in defence innovation have been facing stressful phase due to Covid-19, however, financial stimulus and proper policies from government’s side and diverting MSMEs’ productivity to Covid related items could provide some sort of relief for the time being.
-The writer is a non resident fellow, Council on International Policy, Canada and Asia Pacific fellow, EastWest Institute, US. Views expressed are personal and do not necessarily reflect the views of Raksha Anirveda
