Introduction
Make in India Initiative and its Goal for MSMEs
The Make in India initiative, launched by the Government of India, aims to promote domestic manufacturing, including the integration of Micro, Small and Medium Enterprises (MSMEs) into the defence supply chain. This strategy is designed to enhance the nation’s self-reliance in defence while simultaneously contributing to the growing defence exports market.
Significance of MSMEs in the Defence Sector
MSMEs play a crucial role in every economy, serving as employment creators, innovators, and intermediaries within the supply chains of larger organizations. They contribute significantly to a country’s GDP and are important for both developed and developing economies. In India, MSMEs account for approximately 80% of the country’s businesses and have doubled in number since 2008. With a significant presence in defence manufacturing, MSMEs produce thousands of high-quality products, mainly at the sub-system and component levels, and engage 50% of India’s manufacturing workforce.
The Need for a Supportive Scheme for MSMEs in Defence
Despite their immense potential and technical expertise, Indian MSMEs have not yet been fully integrated into the defence sector due to a lack of clear policies and structured support. In addition, Indian labor laws and value addition by MSMEs lag behind competitors in China and ASEAN countries. To address these issues and maximize the potential of MSMEs in the defence sector, a new scheme has been proposed.
This scheme aims to educate MSMEs about the requirements and expectations of the defence industry, as well as the incentives provided by the government through various events, workshops, seminars, and site visits. By targeting Tier II and Tier III cities with strong industrial and MSME presences, the scheme will facilitate connections between non-defence MSMEs and key stakeholders, such as OEMs, DPSUs, and OFB, and address location-specific challenges faced by MSMEs.
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Objectives of the Scheme
Unleashing the Potential of Non-Defence Sector MSMEs
The Make in India initiative by the Government of India seeks to incorporate Micro, Small, and Medium Enterprises (MSMEs) into the defence supply chain, bolstering the nation’s self-reliance in defence and contributing to the thriving defence exports market. To achieve this, the scheme aims to unlock the potential of non-defence sector MSMEs in Tier II and Tier III cities across India by providing relevant information about the initiative and opportunities within the defence sector.
Strengthening Defence Production and Exports
The scheme’s objective is to invigorate the development of defence production within the country, catering to both domestic needs and exports to friendly nations. This will be accomplished by engaging MSMEs in greater numbers, tapping into their existing knowledge and technical expertise.
Assisting MSMEs’ Entry into the Defence Sector
MSMEs from non-defence sectors will be supported in their transition to the defence sector through workshops and conclaves, which will equip them with the necessary know-how and skills to successfully enter and thrive in this new market.
Introducing Global Market and Business Opportunities
The scheme also aims to educate MSMEs about prospective markets and business opportunities worldwide, helping them to expand their reach and capitalize on new ventures in the global defence landscape.
Fostering Collaboration between Foreign OEMs and MSMEs
Lastly, the scheme seeks to promote institutionalized interaction between foreign Original Equipment Manufacturers (OEMs) and MSMEs, encouraging broader participation in the offset business industry and fostering long-term collaborations that benefit both parties.
Scope of the Scheme
Raising Awareness about Defence Procurement Procedure
The promotional scheme aims to provide MSME vendors with vital information about opportunities arising from the Defence Procurement Procedure, with a focus on the new Make II procedure. This will help MSMEs understand the requirements and expectations of the defence sector, as well as navigate the procurement process more effectively.
Linking Non-Defence MSMEs with OEMs, DPSUs, and OFB
The scheme will connect non-defence sector MSMEs with Original Equipment Manufacturers (OEMs), Defence Public Sector Undertakings (DPSUs), and Ordnance Factory Board (OFB) to help them seize opportunities under the Make in India program in the defence sector. These connections will foster collaboration and knowledge sharing between MSMEs and established defence organizations.
Informing MSMEs about Procurement Process Relaxations
To assist MSMEs in participating in the defence supply chain, the scheme will educate them about relaxations in the procurement process. This will enable MSMEs to better understand the requirements and adapt to the defence sector’s specific demands.
Acquainting MSMEs with Funding Mechanisms and Support
MSMEs will be introduced to various funding mechanisms specifically designed to facilitate entrepreneurs with limited capital or capital-intensive projects. This support will help MSMEs secure the resources they need to thrive in the defence sector.
Investigating the Establishment of Common Testing Facilities
The scheme will explore the possibility of creating common testing and allied facilities at selected centers. These facilities will enable MSMEs to access essential testing resources, ensuring their products meet the high standards required by the defence sector.
Coverage and Deliverables
Strengthening Make in India and the Defence Manufacturing Ecosystem
The promotional scheme aims to boost the Make in India initiative and consolidate the existing defence manufacturing ecosystem by incorporating competent MSMEs from other sectors into the defence industry. This will help enhance self-reliance in defence and contribute to the growing defence exports market.
Identifying Location-Specific Issues for MSMEs
The scheme will focus on identifying location-specific problems faced by MSMEs, particularly those that need to be addressed by the Ministry of Defence (MoD) and the Department of Defence Production (DDP). This will help create a more conducive environment for MSMEs to thrive in the defence sector.
Recognizing MSMEs with Potential to Meet Technology Requirements
The promotional scheme will work towards identifying MSMEs that possess strong potential to meet the technology requirements of the armed forces. This will ensure that the most capable and innovative MSMEs are integrated into the defence supply chain.
Encouraging Defence Exports
By expanding the involvement of MSMEs in the defence industry, the scheme aims to promote defence exports, not only for domestic needs but also for export to friendly countries. This will contribute to the growth of the defence sector and strengthen India’s position in the global defence market.
Implementation Strategies
Hosting Events, Workshops, and Seminars for MSMEs
To educate MSMEs about the requirements and expectations of the defence sector, the promotional scheme will involve organizing various events such as conclaves, workshops, vendor development meets, seminars, exhibitions, Moreover, field trips to notable public and private defence industry entities will be organized. These activities will take place in secondary and tertiary cities nationwide, which are known for their robust industrial activities and significant MSME concentration.
Collaborating with MoD, DDP, and Local Industry Associations
The scheme will be supported by the Department of Defence Production (DDP) and the Ministry of Defence (MoD).The gatherings will be jointly organized by partnering organizations and regional industry associations.This collaboration will ensure that MSMEs receive the most relevant and up-to-date information on opportunities in the defence sector.
Showcasing Successful Defence Sector Professionals and Representatives
Speakers and resource persons at the events will be selected from experienced defence sector professionals and representatives nominated by the MoD, Service HQs, and Indian/foreign Original Equipment Manufacturers (OEMs). These experts will share their knowledge and insights with MSMEs, providing them with the know-how to enter the defence sector and capitalize on business opportunities around the world. This initiative will further promote collaboration between foreign Original Equipment Manufacturers (OEMs) and MSMEs, fostering increased involvement in the offset business sector.
Challenges and Opportunities for MSMEs in Defence
Navigating Regulatory Requirements
One challenge for MSMEs entering the defence sector is navigating the complex regulatory requirements. Understanding the Defence Procurement Procedure and the new Make II procedure is crucial for MSMEs to capitalize on available opportunities. Providing workshops and conclaves will help educate MSMEs on these processes and ensure they can meet the necessary requirements.
Accessing Financing and Support
Financing can be a significant obstacle for MSMEs, especially those that are capital-intensive or led by entrepreneurs with limited resources. The proposed scheme will familiarize MSMEs with various funding mechanisms specifically designed to support their growth in the defence sector. This will enable more MSMEs to access the resources they need to participate in defence manufacturing.
Adapting to Technological Advancements
As technology continues to evolve rapidly, MSMEs in the defence sector need to adapt to stay competitive. The scheme aims to identify MSMEs with strong potential to meet the technology requirements of the armed forces, providing them with the know-how to develop and implement cutting-edge solutions.
Competing with Established Players
MSMEs often face competition from larger, more established players in the defence sector. By connecting MSMEs from non-defence sectors with OEMs, Defence Public Sector Undertakings (DPSUs), and Ordnance Factories Boards (OFB), the scheme will help MSMEs leverage opportunities under the Make in India programme. This collaboration will foster a more inclusive and competitive defence manufacturing ecosystem, promoting both domestic production and exports to friendly countries.
Scheme Name: Scheme for Promotion of MSMEs in Defence
Benefits:
- Unlocks the potential of non-defence sector MSMEs by providing them with relevant information about the ‘Make in India’ programme in defence.
- Stimulates the development of defence production in the country for domestic needs and exports by involving more MSMEs.
- Provides know-how to Indian MSMEs active in non-defence sectors for their entry into the defence sector through workshops and conclaves.
- Educates MSMEs about prospective market and business opportunities worldwide.
- Facilitates the establishment of reciprocal relations between overseas Original Equipment Manufacturers (OEMs) and Micro, Small, and Medium Enterprises (MSMEs) to promote broader engagement in the offset trade sector.
Eligibility:
MSMEs active in non-defence sectors, located in Tier II and Tier III cities across India, are eligible to participate in this scheme. The focus is on MSMEs with strong industrial presence and potential to contribute to the defence sector.
How to Apply:
The scheme will be implemented through various events such as conclaves, workshops, vendor development meets, seminars, exhibitions, and on-site visits to prominent defence sector establishments in the public and private sectors. These events will be organized in Tier II and Tier III cities with support from the Department of Defence Production (DDP) and Ministry of Defence (MoD).
Partner agencies and local industry associations will co-host the conclaves.
MSMEs interested in participating in the scheme can attend these events to learn about the requirements and expectations of the defence sector, as well as the provisions and incentives introduced by the Government. Resource persons and speakers will be selected from experienced defence sector professionals and representatives nominated by the MoD, Service HQs, and Indian/foreign OEMs.
Key Points:
- The scheme aims to educate MSMEs about the requirements and expectations of the defence sector and the provisions introduced by the Government to incentivize them.
- It will provide know-how to Indian MSMEs active in non-defence sectors for their entry into the defence sector.
- MSME vendors will be made aware of and provided information about opportunities arising from the Defence Procurement Procedure, with a focus on the new Make II procedure.
- The scheme will connect MSMEs from non-defence sectors with OEMs, DPSUs, and OFB to help them avail opportunities under the Make in India program in the defence sector.
- MSMEs will be educated about procurement process relaxations and familiarized with various funding mechanisms established for facilitating entrepreneurs with limited capital or capital-intensive projects.
- The scheme will explore the possibility of establishing common testing and allied facilities at select centers to support MSMEs in the defence sector.
- It aims to identify location-specific problems that need to be addressed by MoD, particularly DDP, and to identify MSMEs with strong potential to meet technology requirements of the armed forces.
- The ultimate goal is to promote defence exports and consolidate the existing defence manufacturing ecosystem by inducting competent MSMEs from other sectors into the defence sector.
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Overview of Subsidies and Support for MSMEs in Defense: Benefits, Eligibility, and Application
This table aims to provide a comprehensive overview of various types of subsidies and support available to Micro, Small, and Medium Enterprises (MSMEs) in Defense. The purpose is to help MSMEs understand the benefits they can reap, the eligibility criteria they need to fulfill, and the process of applying for these subsidies. In the following table, we discuss financial assistance, tax incentives, skill development subsidies, export promotion subsidies, and technology upgradation subsidies that MSMEs in the Defense sector can take advantage of to strengthen their operations and contribute to the overall growth of the economy.
| Subsidies | Benefits | Eligibility | How to Apply | Key Points |
| Financial Assistance (grants/loans) | Reduced financial burden, increased working capital | MSME registration, specific sector criteria, creditworthiness | Apply through government portals, financial institutions | Timely repayment, maintain financial records, meet eligibility criteria |
| Tax Incentives | Reduced tax liability, higher net profits | MSME registration, compliance with tax laws | File tax returns, claim incentives during filing | Maintain proper accounting records, follow tax regulations |
| Skill Development Subsidies | Enhanced workforce skills, increased productivity | MSME registration, specific training programs | Apply through relevant government portals | Regularly upgrade workforce skills, monitor training effectiveness |
| Export Promotion Subsidies | Access to international markets, increased revenue | MSME registration, adherence to export regulations | Register with export promotion councils | Comply with international quality standards, diversify products |
| Technology Upgradation Subsidies | Improved efficiency, reduced production costs, enhanced quality | MSME registration, specific technology upgrade programs | Apply through relevant government portals | Adopt new technologies, maintain equipment, invest in R&D |
Madhya Pradesh’s Defence Production Investment Promotion Policy
The Government of India (GoI) has formulated a defence production policy that fosters collaboration between Indian private enterprises and foreign companies. This policy allows for foreign direct investment of up to 49% and aims to boost investment in the defence production sector in Madhya Pradesh (MP).
The State Government of Madhya Pradesh (GoMP) is offering several incentives and benefits to encourage defence manufacturing units to invest INR 500 crores or more in the state. Let’s dive into the details.
Special Concession for Allotment of Government Land:
The GoMP is offering priority land allotment from its land bank to defence manufacturing units. Undeveloped government land will be available at a discounted rate, with up to 50 acres of land being offered at 25% of the value of non-irrigated agricultural land. For developed industrial areas, a 75% concession on the prevalent premium for land will be provided. Defence manufacturing units will have five years to start production and ten years to fully utilize the allotted land. The land can also be sub-leased to vendor units.
Streamlined Establishment of Units:
Defence manufacturing units will receive a one-stop-shop experience through the MPTRIFAC’s single window system, making the approval process hassle-free. A dedicated investment relationship manager will be provided to each unit. Vendor units supplying 75% of their products to the mother unit will be eligible for financial incentive packages similar to those offered to the mother unit.
Special Subsidies:
Defence manufacturing units are eligible for capital subsidies of 50% up to INR 5 crores for expenses incurred in establishing basic infrastructure on undeveloped land. Units established through the purchase of closed, sick, or acquired units will be granted similar facilities and incentives under the Industrial Promotion Policy. Defence product projects with a minimum fixed capital investment of INR 500 crores will receive additional entry tax exemptions, industrial investment promotion assistance, and electricity duty exemptions. Transfer subsidies are also available for transportation of imported equipment up to the date of production.
Technical Assistance and Support:
Defence manufacturing units can request the handover of a Government ITI for skill development operations. They will also be reimbursed 50% of the cost of technology transfer (up to INR 50 lacs) if they develop local vendor units through this transfer, which is recommended by the Ministry of Defence, Government of India, and source 50% of the components produced by them.
Support for Joint Collaboration with Public Sector Units:
Joint venture units will also benefit from the incentives mentioned above. Projects worth INR 1000 crores or more will receive up to 100 acres of land at subsidized rates, road and electricity infrastructure, and eligibility for 100% reimbursement of stamp duty and registration fees levied on instruments, land registration, etc., within the state.
Additional Incentives:
Apart from the assistance under this policy, defence manufacturing units will be provided with other incentives and assistance under the State Industrial Promotion Policy, applicable to all small, medium, or large-scale units.
The Defence Production Investment Promotion Policy in Madhya Pradesh presents a range of benefits and incentives to encourage investment in the defence production sector. With land concessions, streamlined approvals, subsidies, technical support, and additional incentives, this policy offers a comprehensive package for defence manufacturing units looking to invest in the state.
Policies of f Madhya Pradesh’s Defence Production Investment Promotion Policy
This table outlines the key points, benefits/incentives, and conditions/requirements of Madhya Pradesh’s Defence Production Investment Promotion Policy. The policy aims to promote investment and production in the defence sector in Madhya Pradesh. The policy covers various areas including land allotment, special incentives for establishment, subsidies, technical assistance and support, joint collaboration with public sector, and additional incentives. The policy offers priority allotment of undeveloped land in the land bank and concessions on land premiums. It also provides financial incentive packages for vendor units and capital subsidies for basic infrastructure. The policy emphasizes local skill development and technology transfer reimbursements. In addition, the policy offers inclusive benefits for joint venture units, exemption from entry tax and electricity duty, and industrial investment promotion assistance scheme. The policy requires specific conditions such as minimum fixed capital investment and percentage of components produced by local units to avail these benefits.
| Policy Area | Key Points | Benefits/Incentives | Conditions/Requirements |
| Land Allotment | Priority allotment of undeveloped land in land bank | 25% rate for non irrigated agricultural land. 75% concession on prevalent premium for developed land | 5 years for starting production. 10 years for land utilization |
| Special Incentives for Establishment | One roof single window system | Financial incentive package for vendor units (75% product purchased by mother unit) | |
| Subsidies | Capital subsidy on basic infrastructure of electricity, water, and road | 50% up to INR 5 crores. Transfer subsidy (50% up to INR 2 crores) for imported equipment | |
| Technical Assistance & Support | Govt. ITI for skill development operation. Reimbursement for technology transfer costs | Up to INR 50 lacs reimbursement | 50% components produced by local units |
| Joint Collaboration with Public Sector | Inclusive benefits for joint venture units | Subsidized land for projects worth INR 1000 crores or above. Infrastructure for large projects | 100% reimbursement of stamp duty and registration fees |
| Additional Incentives | Entry tax exemption. Industrial investment promotion assistance scheme. Electricity duty exemption | Two additional years for exemptions | Minimum INR 500 crores fixed capital investment |
Conclusion:
The Scheme for Promotion of MSMEs in Defence has the potential to significantly impact both the MSME sector and India’s defence industry. By facilitating the entry of non-defence MSMEs into the defence supply chain, the scheme aims to enhance the country’s self-reliance in defence production and contribute to the growing defence exports market.
Encouraging MSMEs to explore opportunities in the defence sector will not only strengthen India’s industrial base but also generate employment and promote technological innovation. The scheme’s focus on workshops, conclaves, and collaborations with industry stakeholders ensures that MSMEs receive the necessary guidance and support to navigate the defence sector successfully.
In conclusion, the Scheme for Promotion of MSMEs in Defence is a promising initiative that can unlock the untapped potential of India’s MSMEs, bolstering both the country’s defence capabilities and the overall economy. MSMEs are encouraged to participate actively in this scheme to seize the opportunities in the defence sector and contribute to India’s growth and self-reliance.
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