View from India: Defence sector creating opportunities for SMEs

Defence public sector undertakings, such as Hindustan Aeronautics Ltd (HAL), are creating streams of revenue for the SME sector in the form of sub contracts. On a broad scale, this is an opportunity which the manufacturing sector needs to leverage.

When we look at the history of our defence sector, the country began by importing defence technologies, but now our military and civil defence sector have such a strong ecosystem that they have been catapulted into the global arena. In the last decade, the Indian civil aviation industry has grown at a fast pace. India - which is the ninth largest civil aviation market in the world - is set to occupy third place by 2020. To meet the growing demand, airport operations will increase capacity. Many of the existing airports will be modernised and upgraded with radars and surveillance systems.

“SMEs and micro, small and medium enterprises (MSMEs) have several opportunities in the defence sector in the form of offset programmes and direct supplies, said Suvarna Raju, chairman and managing director, Hindustan Aeronautics Ltd (HAL), addressing the gathering at the CII Industry Next Summit, ‘The Emerging New Growth Paradigm’. “Besides the defence industry, public-sector undertakings have begun to offload parts of their manufacturing to tier suppliers. Due to this, the turnaround time of production is shortened and piloting or testing of products is also accurate,” he continued.

HAL is offering technology transfer to the Indian private industries: “L&T has undertaken the manufacturing of the composite wings of HAL. Seen from the business point of view, such contracts can result in a win-win situation for both the buyer and supplier in the aerospace sector,” added Raju.

In February 2018, HAL offered the manufacturing of the Advanced Light Helicopter (ALH) Dhruv to potential Indian private companies through transfer of technology. This is a first-of-its kind in the Indian history and can be seen as a major boost to both defence manufacturing as well as the Government of India’s Make in India initiative. Incidentally, this is a civil version of ALH Dhruv, which also points to the fact that there is a growing demand for helicopters for civil operations in the country. HAL is the design authority and original equipment manufacturer (OEM) of ALH-Dhruv. Being the technology provider, HAL will give transfer of technology and technical assistance to the business partner.

The industry needs to take advantage of this and domestic participation should be increased through private-public participation. On the one hand, technology transfers are being encouraged. On the other, HAL has also opened out channels for sub-contracts for SMEs.

Karnataka is an important manufacturing hub in the defence and aerospace industry. At least a quarter of India’s aircraft are produced here and around 70 per cent of the industrial activity in the defence sector happens in the state.

SMEs are a crucial segment of the manufacturing industry of India. With a workforce of around 60 million, SMEs account for approximately 45 per cent of the country’s industrial output, with the potential to generate 1.3 million jobs a year.

Besides SMEs, entrepreneurs and start-up enterprises are also key representatives of the manufacturing industry. “Globally, India is the third largest force for start-ups with 85,000 employment opportunities. By 2020, the number of start-ups is expected to be 11,500 and is expected to create 300,000 jobs. Investors are expected to increase multifold. Around 20-25 per cent of the Indian workforce will constitute start-ups,” reasoned Vikram Kirloskar, chairman, CII Southern Region.

These include contract employees and freelance online workers. India can prosper if we can address and share the aspirations of all strata of society. It’s important to incentivise industry towards skilling for new workforces. Talent-driven innovation is important for competitiveness.

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