Opportunities for Indian MSMEs in the Defence Sector in 2022

In India’s endeavor to propel the Make in India initiative, the Government of India has  opened up an array of opportunities for private sector participation to foster innovation and enable technological development in the Indian Defence ecosystem. The various schemes and policies of the GOI for the promotion of MSMEs in particular in the Defence sector, are aimed at harnessing their untapped potential with regards to their burgeoning expansion in the country as well as their technological prowess to boost the defence supply chain.

According to the data shared by former MSME Minister Nitin Gadkari in Rajya Sabha in March 2020, there were already 10,506 MSME vendors in India that been supplying to the Defence Public Sector Units (DPSUs) and that number has further soared to 12,000 in December 2021. Likewise, it led to a simultaneous increase in the procurement value by DPSUs from MSMEs from Rs 4842.92 crore in FY19 to Rs 5463.82 crore in FY21.The MSMEs have thus proven to play a huge role in the designing, development as well as indigenously manufacturing entire defence systems. And with the amount of impetus that has been provided by the government in the past few years through its Make in India initiative and various other collaborative policies to incentivise the MSMEs from non- defence sectors to enter the defence sector, they have become increasingly capable of manufacturing more than what they are conventionally expected to owing to the constricted financial and technological opportunities they generally have had access to.

One of the key objectives of inducting MSMEs into the realms of India’s defence sector has been to attain India’s vision of self- reliance to about 70 percent with respect to its defence equipment production by the year 2027. Thereby from being one of the biggest importers of arms to not importing anything at all by way of encouraging defence indigenisation both for its domestic requirement and for exporting to friendly countries as well. Emphasising the immense potential that MSMEs have in meeting the country’s domestic and international requirements, Defence Minister Rajnath Singh had announced in December 2021 that defence exports from the country had crossed the  Rs. 38,000 crore mark in the last seven years.

In order to render the process of indigenisation easier, the government has taken a few substantial measures including the launch of the Srijan portal in August 2020 that renders complete details on things that can be indigenously manufactured by private enterprises. Moreover, 'MAKE Projects' were also developed by the government in the Defence Acquisition Procedure (DAP) 2020 to facilitate indigenous design and development of defence equipment with both government and industry support. 

MAKE Projects have been essential in strengthening the role of MSMEs in the defence industry. According to the Make in India portal, over 40% of project sanction orders and projects worth over Rs 1,000 crores have been allocated for MSMEs.

The government has also established a Technology Development Fund (TDF) to encourage MSMEs to partake in creating competent technology for defence systems by facilitating grants. Apart from the above indigenisation initiatives, the Defence Ministry has also forged another landmark move to accelerate India’s self reliance in defence by means of according approval to as well as simplifying the procedure for procurement from the Innovations for Defence Excellence (iDEX) startups/MSMEs. As a result, the Defence Acquisition Council (DAC) led under the chairmanship of Defence Minister Rajnath Singh cleared the procurement of 14 items worth Rs. 380.43 crore last month from the Innovations for Defence Excellence (iDEX) startups/MSMEs that will be inducted into the service for the Indian Army, Indian Navy, and Indian Air Force.