Defence manufacturing has reached its threshold; challenges loom large

By Vedanta Agarwal

Lucknow: Yogi Adityanath’s ambitious policy on defence manufacturing can be more than a political plank for the upcoming elections provided it withstands administrative challenges of implementation and creates incentive for private and foreign investors.

UPEIDA, the nodal agency responsible for the defence corridor, described it as a ‘greenfield project’, the implications of which are far-reaching. The nodal officer says that the corridor is being built from scratch and hence it requires to follow a series of steps ranging from procurement of land, creation of land banks and infrastructure such as highways and drainage systems to formulation of a separate state policy and set of byla ws on defence and aerospace. “The policies required are in place, and the progress of the corridor can be understood in terms of procurement and allotment of land to industries,” says Col. Kuldeep Tyagi, senior advisor to UPEIDA. He says that the construction of the defence corridor solely relies on procurement of government land. The actual progress of the corridor is indicated by the allocation of the envisioned land to investors.

The data for Lucknow, one of the six nodes of the corridor, shows that the actual land available for allotment  is significantly lower than the 67,290 hectares of land envisaged for the corridor on paper. The total land allotted varies from 55,000 hectares in Aligarh to far less in Lucknow, Chitrakoot and Kanpur.  As far as the final allotment for the Lucknow node is concerned, the government is in talks with as many as ten investors. Manufacturing industry experts like Alok Agarwal are of the opinion that the process of procurement of government land by state development authorities of UP is relatively slower when compared to states like Tamil Nadu and Gujarat where the government is ready to give already developed land to investors. The delay and resistance in the procurement process results in the shortage of land available to set up manufacturing units. This directly links the need for an efficient bureaucratic machinery to the development of defence manufacturing in the state.

The government has clearly articulated its aim for a privatised and export-oriented defence industry. Arvind Kumar, Additional Chief Secretary, Industries, said that the defence corridor is open to investments from private startups and small scale industries to mega anchor units. Senior army personnel who have been appointed as advisors to the state development authority are strongly in favour of collaboration with private players in defence. “Privatisation of the defence manufacturing will prove to be a major boost to the dream of a 5 trillion economy as it would induce competition, ensure better quality and lay the foundation of an export-driven industry,” said Col Tyagi. The dissolution of the Ordnance Factory Board clearly underlines the government’s inclination towards a privatised defence manufacturing industry. Out of the 56 MOUs signed with private enterprises across the six nodes of the corridor- Aligarh, Jhansi, Kanpur, Chitrakoot, Agra and Lucknow- only 22 have been materialised in a span of 2 years. The government has been instrumental in getting investors like Logitech, Allen & Alvan, Kobra Industries and PBM Insulations on board. The manufacturers roped in by the government specialise in drones, precision components, aerospace equipment, defence clothing, metallic parts for explosives and small arms and defence weapons. 

Talking about the promise that the defence corridor holds for the private sector, the Director of PTC Industries said that the common testing facility which is partially funded by the government will make things easier for the entire machinery sector as companies are devoid of an independent testing facility and have to be dependent on other states for it. The private sector has been undertaking heavy risks by investing in R&D which would yield no return. The government is now hand holding the private sector in research and development by bringing in IITs and academia into its fold. He added that one can’t say that the state has transformed into a leading defence industrial base till these measures are translated on ground. Private manufacturers are upbeat about it as initiatives are being taken in the right direction as far as optimum consumption of raw material and the need for foreign exchange is concerned. To that end, UPEIDA has recently signed an MoU with the Society of Indian Defence Manufacturers (SIDM) for mobilising an investment of Rs 1,000 crores. 

Foreign manufacturers have so far remained skeptical about investing in the defence corridor. Defence manufacturing experts are arguing that the perception of Uttar Pradesh as a primarily agriculture-based state deters foreign investors from setting up their units in the state. Governments have always come up with token policies but done little to consolidate the industrial capacity of the state. Alok Agarwal pointed out that the potential of UP remains untapped. In order to attract foreign manufacturing giants, the government needs something to showcase on ground which acts as an incentive for them to establish units in the state. Industry analysts remarked that GST will prove to be a great factor in attracting investors, as it is now based on consumption rather than production, and UP has a relatively larger consumption base than states like Maharashtra and Tamil Nadu. Sachin Agarwal, President of the UP chapter of SIDM said that the society will use its expertise and reach to bring investments and provide a helping hand to various MSMEs to create an ecosystem of defence manufacturing within the state.

Private players of the state note that domestic companies are playing a major role in driving the growth of defence manufacturing in the state but the longevity of an isolated growth like this is far less. Alok Agarwal adds that past experiences of the state with manufacturing have shown that the government has to sustain its intention and investment, and not rely on imports as a substitute for setting up of manufacturing units. He remarks that private undertakings under the helm of development authorities are willing to take calculated risks in developing the prospects of defence manufacturing in the state if the government is prompt in providing productive land and administrative support. The vision of the defence corridor merits some credibility as long as it proposes viable solutions to basic structural problems in the defence manufacturing industry.