India’s Defense Minister leaves indigenization in private hands, says GlobalData

Following the news that India’s defense manufacturing was adversely affected due to COVID-19;

Mathew George, Ph.D., Aerospace & Defense Analyst at GlobalData, a leading data and analytics company, offers his view:

“According to GlobalData’s report, The Indian Defense Market – Attractiveness, Competitive Landscape and Forecasts to 2025, India’s Defense Procurement Procedure had earmarked government funded projects below INR1bn (US$13.2m) for Micro, Small & Medium Enterprises (MSMEs). The previous announcements from the finance minister (FM) and confirmed by the defense minister suggests this is now INR2bn (US$26.4m).

“That’s a huge step and a big gap that local companies will need to fill. No government order below that threshold can be given as a global tender. Local companies will have to innovate, be efficient and meet the stringent requirements of the armed forces. When the government releases the list of weapons/platforms that are part of an import ban, it should give more clarity as to what companies should be developing or investing in, or even creating strategic partnerships with global companies. In addition, companies can look at the push for indigenization of spares. So far though, the government has notified 26 items of 127 (where purchase preference is given to local suppliers) to be procured only from local suppliers, irrespective of purchase value, provided they meet minimum local content as prescribed for each item. But the list is for things like Helo Landing Grid, Gemini Inflatable boat, Belleville Springs and doors for use on ships.

“The announcements from the defense minister show that the defense industry in India wasn’t immune to the troubles brought on by COVID-19, and that the 8000 odd MSMEs that supplied 20% of total production of various government organizations now faced existential problems. For these firms, their only customer is the government, so, if the government isn’t buying, there’s nothing they can do.

“The government seems to suggest that clearing dues by the Ministry of Defence (MoD) was a ‘step’ taken to help the industry. But, above this, it must be mentioned the MoD also extended the response dates of RFP/RFIs. That should allow some companies to bid for and secure new contracts to get their companies working again. The other measures to help local production hasn’t been via the MoD, but rather the general measures that were announced for all MSMEs by the FM. How much of these measures will eventually reach defense specific companies and how they capitalize on the new limits will determine whether these reforms by government result in the success of this indigenization drive.”

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