Govt. Should Incentivise MSME Manufacturers for Producing for Defence Sector: Assocham-KPMG

A new ASSOCHAM-KPMG joint study suggested that the government should incentivise private enterprises to push the defence manufacturing sector.

The study titled, 'Creating a level playing field to facilitate Make in India in defence,' jointly conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and global professional services firm KPMG, said the government to incentivise private enterprises for developing large-scale research and development (R&D) and manufacturing capabilities.

India's gross defence budget is expected to reach US$ 112 billion (bn) by FY27 from $45 bn announced by the Government of India in 2018-19, owing to significant steps were taken by the Centre to bolster country’s position as a major aerospace and defence power, noted the study.

Also Read: SMEStreet Exclusive on Defence Sector Opportunity for MSME

It also noted that while in 2018-19 the budgetary increase was a meagre 7.8 percent over the previous year, it is expected to clock an estimated compound annual growth rate (CAGR) of about 11 per cent until FY27.

The study however raised concerns that about 10 percent of the defence budget is surrendered to Ministry of Defence (MoD) at the end of each financial year owing to underutilisation as the reserved budget is not mapped with capital acquisition.

It said that country's capital expenditure for defence procurement is expected to exceed $250 bn over the next 10 years, primarily to replace the Soviet-era vintage equipment and meet the growing modernisation needs of Indian Armed Forces. However, out of this, the domestic industry would only be able to manufacture defence equipment worth just about $80 bn while rest of it would have to be imported.

It said that a vibrant domestic manufacturing ecosystem that includes both public and private defence manufacturing entities is essential for the success of 'Make in India' in the defence sector.