MSMEs Should be Strategic Partners in overall Defence Procurement: Manohar Parrikar

The task force under the chairmanship of ex-chief of Defence R&D Organisation, Dr V K Atre for formulating parameters for  identifying ‘strategic partners’ in the Indian industry for the defence sector is soon going to submit its report to the Government. The core issue before the task force is indigenisation of defence procurement as announced by the defence minister under the ‘Make in India’ initiative of Modi Government. However, any such initiative will be fruitless if participation of the vital MSME sector is ignored by the task force.

The fledgling MSME sector of India is showing a growth rate much above the large sector and is already supplier of ‘niche’ hardware and software for the defence sector. However, without a ‘place by right’, they are fleeced in pricing, payment by the large contractors. The result is they are left with little surplus to invest in innovation and improvement.

“Government should develop a defence industry eco system for a robust supply chain and MSMEs should be taken as an important link in the chain”, commented one MSME entrepreneur engaged in defence supplies.

To highlight this and other crucial issues like support for R&D, easy credit, technology transfer by foreign contractors etc. to MSMEs, FISME, the apex federation for the MSME sector in India, organised a seminar with all stakeholders sometime back which was inaugurated by the Defence Minister.

In his speech, Mr. Parikkar mentioned that issues related to participation of MSMEs in defence procurement will be addressed by the Ministry in the Defence Procurement Procedure (DPP 2015).

The multi- billion dollar defence procurement is currently, overwhelmingly, from the multi nationals and “the government’s effort is to have as much indigenisation as possible”, as announced by defence minister Manohar Parrikar at a DEFCOM seminar organised by a trade body in New Delhi, recently.

Towards this end Government had constituted a committee headed by former defence secretary Dhirendra Singh and the Committee has already submitted their report.

However, the Committee did not accept the demand for reserving a share of the total procurement for the MSME sector and instead, suggested various capacity building measures for the sector. In the urge of ensuring quality and timely supply the Committee overlooked that without a thriving chain of MSME suppliers the ‘Make In India’ will degenerate to ‘assemble in India’  without any effective indigenous  value addition.

Following recommendations of the Dhirendra Singh committee report on the existing  the Defence Procurement Procedure,  the MoD formed a 10-member task force under the chairmanship of Dr. Aatre for formulating the parameters with which the government will identify “strategic partners” in the Indian industry for the defence sector, like — aircraft, warships, submarines, armoured fighting vehicles, complex weapons etc. The Aatre task force, which may submit its report in this week itself, reported to have identified 15 sub-segments, each having one strategic partner from Defence PSUs and private businesses, who will be the monopoly player in the sector, insulated from the ‘L1’ tendering system.

However, if the task force fails to insist on criterion of development, handholding and capacity building of MSME sub contractors by the strategic partner, the whole exercise will degenerate to a ‘ screw driver’ indigenisation  as happened during the initial days of indigenisation of electronic goods in the eighties.  Globally the strategic defence suppliers  make very little and essentially assemble on the ‘platform’ without a component supplier base, which again, globally, are the MSMEs, the strategic partner will be left to import components and assemble with little’ indigenisation’.

Commenting on the  emerging  syndrome, a senior executive of FISME, which is taking a lead on the participation of MSMEs in defence procurement, commented, “Government should ensure that the  strategic partners in Defence  develop a thriving supply chain for defence procurements with a strong base of enabled MSME suppliers and only then  Make in India in defence procurement will fructify”.