Study of the MSMEs in Indian defence sector

Abstract

The geo?strategic location of India and geo?political problems across the boundary pose serious threat to the security of the nation. In order to maintain the peaceful environment, Government of India has consistently made an effort by investing in the defence budget. MSMEs have contributed to the defence sector in the past by manufacturing small equipment, sub?assemblies or ammunition. MSMEs make almost 80% of components, aggregates and assemblies of complex weapon systems and aircraft. 1 According to US research firm IHS Inc, India ranks among the top 5 countries in the world in terms of defence expenditure.2 India assigns 2% of GDP towards defence spending of which 40% is allocated for capital acquisitions.3Government of India allocated INR 2244.56 Billion for defense expenditure in 2016? 17.4 The last five year's comparative study of the defence expenditure entails that India's defence import is approximately 40 times its export.5 Government of India have taken several initiatives to increase the self?reliance for defence sector including: 100% FDI in defence sector, 49% automatic route and up?to 100% through approval route to access the modern technology, Make in India policy to increase the manufacturing of defence equipment in India, Offset Policy 30% procurement through a regional player6 As a part of our project, we have studied defence ecosystem in India, government policies, defence procurement policies and role of MSMEs in defence. MSMEs have the potential to contribute to India's defence sector due to its operational flexibility, lower cost and diversity. So, we studied current challenges faced by MSMEs in India and looked at how MSMEs can be major contributor to the India's defence sector. We have also done the cross country comparison of the defence policies. Lastly, based on our understandings and research we provided recommendations to improve the contribution of MSMEs in the defence sector