Since coming to power with a majority mandate in the 2014 Lok Sabha election, one of the flagship policies of the Modi government has been ‘Make in India’. The aim of the government is to turn India into a manufacturing hub reducing dependency on imports. The policy also aims to make India a great player in various industries, including the defence sector. Defence Minister Nirmala Sitharaman on her Facebook blog post wrote about Modi government’s push for defence corridors and its importance for the growth of the defence manufacturing capabilities in the country. The blog post states:-
Defence Corridors – Providing an Impetus to Indigenous Industry
India has made a significant jump of 65 places (from 142 in 2014 to 77 in 2018) in the global ‘Ease of Doing Business’ Rankings in the last four years with the mantra of “Reform, Perform and Transform.” Make in India – the big ticket policy launched by the Hon’ble Prime Minister to turn the nation into a manufacturing hub, reduce burden on imports and make India an important player in the global supply chain, is already showing great results at the ground level.
Defence is specifically one such area where the Modi government has promoted the Make in India agenda to invigorate the indigenous industry. A comprehensive approach has been adopted where policy changes and on-ground programs have been simultaneously implemented with a long term vision to convert India from a defence importer to defence exporter. The Defence Procurement Policy 2016 introduced many changes that focus on giving priority to procurements from Indian manufacturers and service providers. The DPP 2016 introduced a new procurement category – Buy IDDM (Indian Designed, Developed and Manufactured) which has been welcomed by the Indian industry as it gives top priority to indigenously designed equipment in the context of capital acquisitions. In addition to such policy changes, the government has taken steps to develop infrastructure and build capacity in various locations across the nation. The Uttar Pradesh and Tamil Nadu defence industrial corridors, as announced by the Finance Minister in his 2018 Budget Speech, have been landmark decisions in that direction.
A defence corridor refers to a route or a path along which domestic production of defence equipment by public sector, private sector and MSMEs are lined up to enhance the operational capability and preparedness of the armed forces. The rationale behind setting up industrial corridors is to ensure connectivity among various defence industrial units. MSMEs are at the heart of the defence corridor. With their support, the proposed corridor would make the DPSUs competent enough to fulfil the demand in the defence sector. The purpose of the corridor is to revive the Defence Public Sector Undertakings (DPSUs) and to encourage Micro Small, and Medium Enterprises (MSME) to work closely with PSUs for defence indigenisation. Small businessman often complain that they still run pillar to post and wait for days to test components and and get them certified, before they supply to assembling units. The defence corridor attempts to change this status quo and encourage private sector to venture into defence. The government has introduced, in May 2018, a draft amendment to its offset guidelines which provides additional ways in which the foreign OEMs can discharge their obligations. Investment by foreign OEMs in these defence corridors will enjoy a higher multiplier as compared to other areas with regard to the discharge of offsets.
These Defence Corridors will be built on existing defence production facilities and will set up new industry clusters to create a synergistic supply chain of MSMEs and OEMs with necessary testing and certification facilities, export facilitation centres, technology transfer facilitation etc. In each Defence Corridor, one major cluster of defence production units around an anchor unit will be developed in one of the nodal cities of the Defence Corridor.
The locations of these corridors have been strategically identified by the government while taking into account a natural ecosystem that could be utilised for enhancing the existing defence network.The two states have been picked for having budding heavy industries, existing DPSUs and a general potential to nurture and support a supply chain for defence products. The nodal cities identified have an existing defence ecosystem in the form of ordnance factory boards, vendors working with defence PSUs, and other allied industries. The nodal cities of UP are Agra, Aligarh, Jhansi, Kanpur, Chitrakoot, Lucknow; and for Tamil Nadu they are Chennai, Hosur, Coimbatore, Salem, Thiruchirapalli. These cities have been categorized into greenfield and brownfield nodes. Greenfield nodes are those with industrial presence but no existing defence infrastructure. Brownfield nodes are the cities with heavy industrial presence and existing defence infrastructure in the form of DPSUs and private defence industry. Such a methodology enables the government to strategically plan investments in the two states.
For example, Chitrakoot, a greenfield node, has no defence or aerospace industry. In addition, Chitrakoot has limited exposure to skilled labour force or infrastructure for any allied industry like automotive, electronics or other services industries. However, the district already has over 180 MSMEs in the agro-based industry. In line with the Uttar Pradesh Food Processing Industry Policy 2017, an Agro Food Processing Park is proposed to be set up in Bargarh, Chitrakoot with facilities for food processing, packaging, preserving and warehousing.Based on this inherent know-how of food processing the district has the potential to develop into a major supplier (domestic and export market) of processed food for military purpose.
On the other hand, Thiruchirapalli, a brownfield node, is home to a Bharat Heavy Electrical Ltd (BHEL) facility, an Ordnance Factory, the Heavy Alloy Penetrator Project and other heavy heavy industries. This region has requisite infrastructure and skilled labor to be a defence production powerhouse and even benefit other nodes throughout the corridor.
Developing each of the identified nodes will be carried out through various infrastructure and policy interventions.The interventions will be mainly in the form of Centres of Excellence, Skill Development Centres and Technology Hubs.
Assessing the current maturity of the country’s defence industry, one can identify that there are gaps in one or more of the manufacturing value chain such as R&D, prototyping, testing and certification. While we have strong R&D facilities within DRDO, prototyping support within various academic institutions and testing facilities within DPSUs and some of the larger private players, none of these facilities are dedicatedly at one place and on offer to the industry in a cost-effective manner. The Centres of Excellence will ensure development activities of a defence system at one physical location and make it accessible for all at competitive charge-out rates. For example, IIT Kanpur has agreed to set up a centre of excellence for the proposed defence corridor. The primary areas of collaboration between UP government and the institute will be advanced nanomaterials, cybersecurity and electronics as well as communications.
Due to advancement of technology and productivity changes, there are constant changes in the growing defence industry. This results in new needs for relevant and practical skills that were previously non-existent. Given the dynamic environment, there is a continuous need for skills enhancement and setting up of multiple Skill Development Centres throughout the corridors. The government will study industry requirements of the given area and then design specific training modules and a full-scale domain-specific curriculum, if necessary.
Technology Hubs will be built with the focus to facilitate engineers, academicians, industry experts and technology start-ups in the creation of cutting-edge world-class defence technology. The Tech Hub will provide a platform for interaction between like-minded individuals who want to work on breakthrough defence technology. These hubs are proposed to be established near renowned academic institutions and the industry-academia relationship is a cornerstone for their functioning.
Other initiatives by the government, such as IDEX (Innovations for Defence Excellence), will support technology development within the corridors. An excellent example is the CODISSIA (Coimbatore District Small Industries Association) Defence Innovation Centre, launched in Coimbatore last month, which plans to leverage the existing industrial infrastructure in the city to support and encourage innovative start-ups and MSMEs venturing into defence.
The two defence corridors are expected to generate 3.5 lakh jobs (1 lakh in Tamil Nadu and 2.5 lakhs in Uttar Pradesh) at various stages of the supply chain. Investments worth Rs 3200 Crore have already been announced in the Tamil Nadu corridor and a Defence Investors’ Cell has been set up in Uttar Pradesh to ensure speedy development of the corridor. The extremely challenging time frame within with the project was conceptualised and implemented makes it a significant example of co-operative federalism and synergy between the centre and the states.