Edited excerpts:
The Make in India initiative of the government is focused on 25 sectors that also includes defence manufacturing and the aerospace sector. Opportunities have been created and favourable policies are being developed.
Recent changes in the Indian defence procurement programmes are aimed at creating an “all-new world” as far as defence manufacturing is concerned. The defence minister’s vision of locally procuring close to $8 billion to $10 billion per year worth of defence products in the next 5-10 years clearly indicates its favourable intent towards creating a positive environment for Indian manufacturers.
The offsets to be discharged in the country by various foreign OEMs (original equipment manufacturers) stand at about $29 billion and it is set to increase to about $35 billion if some of the major deals are closed by the end of FY16.
In the areas of taxation, the companies are facing severe headwinds, MAT (minimum alternate tax) for SEZs, for instance, is still a concern. Aerospace and defence sectors with such high working capital cannot sustain unless these taxes are waived off. Implementation of GST for SEZs, taxes and refund of duties in timely manner is just another example.
Today, most of the defence production happens through MSMEs (micro, small and medium enterprises). The big challenges that these MSMEs face are high cost of capital and lack of technology. So, the policy changes should create an investment vehicle which can help MSMEs get access to funds and technology easily.
Further raising the Foreign Direct Investment (FDI) policy cap from the current 26% to 49% is helping in growing volumes for the aerospace and defence sector that involves longer investment cycles. It will also encourage greater participation by foreign OEMs and facilitate technology transfers. This relaxation also helped Aequs to increase its FDI relaxation to 30%.
The Make in India initiative should bring about a change in how the private sector is perceived. The private players and government organizations have to work in a collaborative approach to make it work. For the initiative’s success, innovation, indigenous manufacturing and self-reliance are the key aspects.
These should be encouraged in addition to developing the capabilities of the industry to cater to exports. Domestic capabilities should also be built based on cutting-edge technology in terms of designing and developing state-of-the-art systems.
As India is on the growth path, with the aspiration to become one of the leading world powers, a close examination of the different sectors will provide better clarity. Except for some areas like the Information Technology/Information Technology enabled Services (IT/ITeS), biotechnology, textiles sectors where our technological prowess is evident, we are yet to create a globally competitive industry across many sectors.
This is all the more true in the defence sector where we continue to import 70% of our requirements. Establishing a comprehensive ecosystem like a regulatory framework including favourable labour laws, identifying the ways to optimize the capital, selection of suppliers based on capabilities, will have a cascading impact on the growth of this industry.
Global commercial aerospace manufacturing amounts to a $100 billion industry. Aerospace supply chain is challenged to keep pace with the increase in the rate of production of components, systems and services.
Significant investment in tooling and economies of scale is essential to become cost competitive. Today, OEMs are increasingly making use of a global supply chain. They are not only farming out a big chunk of machined and sheet metal parts production, but also expecting vendors to supply large aircraft sub-assemblies and even design expertise.
Source: Mint