Defense Electronics Manufacturing In India Gathers Pace

DW : What is the status of indigenous production of defense electronics?

M N Vidyashankar: It has picked up momentum now, in fact all PSUs in the defense electronics arena including very big players in the private sector are setting up their units for manufacturing defense electronics and communication.

DW : Can you name some of the projects?

M N Vidyashankar: Mahindra Aerospace has started construction in Kolar for its aircraft accessories, assemblies, sub-assembly manufacturing. Tata SED has started a big project and has taken about 50 acres of land in Kolar. It will spend INR 450 crore on the greenfield defense production facility to create an integrated digital design-to-manufacturing facility for large systems engineering and integration. Pipavav is a big story for us. We are also looking at some inputs which we are going to share with Ministry of Defense for our new defence electronics policy.

DW : What are these inputs?

M N Vidyashankar: We had made a detailed presentation to the additional secretary of defense on 20 April. He has asked us to take more inputs from two more entities; BEL and HAL. Inputs from BEL have been acquired so as to incorporate in the new policy. Inputs from HAL are yet to come. Once that is done, the new policy is due for release on the fourth of August. This policy will be exclusively for electronics in defense, aerospace and internal security.

DW : What is the status of Request For Proposal (RFP) for electronic devices for Mi-17V5 helicopters from Russia. The RFP was for Indian companies only?

M N Vidyashankar: The Ministry of Defense is yet to take any decision on that issue, far as I know.

DW : What is the status of your proposal to the government that defence electronics projects be compulsorily given to indigenous electronics companies?

M N Vidyashankar: The local electronics components have to be inducted in a phased manner. For example, in year one, the local component should be ‘x’ percentage. In year two, it has to be ‘2x’, in year three, it has to be ‘4x’ in the third year in a graduated way. In the interaction we had with HAL, BEL and few private players who manufacture defence equipment, they say, local sourcing has definitely increased. That means, the role of companies who have the capability to manufacture components for the PSUs has increased. It will take some time for maturity to take place to reach to a level where they can have a variety of suppliers for one single component similar to what ISRO does. It will take at the least three to five years for any manufacturing to take off in a big way. Any kind of manufacturing in electronics space requires that much time.

DW : Will global companies change their current supply chain to accommodate Indian companies (with 100 per cent FDI)? If Yes, Why?

M N Vidyashankar: High power costs, high input costs, inverted duty structure etc., commonly called as disabilities are preventing local manufacturers from taking off. What will you do with the disabilities?.. You will try and compensate for them. You take up Modified Special Incentive Package Scheme (MSIPS) from the Government of India to local players.  There is 25% capital subsidy from MSIPS. This takes care of the disabilities to a large extent. There is 2% export subsidy if the company intends to export its components. There is also something called investment subsidy. If your investment is beyond certain threshold, you get another 2%. So, to an extent, close to about one-third of the capital cost is taken care by these incentives. This can be one driving force that global companies look for local companies. It helps them to cut down close to about 30% of their total investment.

DW : Name some major Indian companies investing in defense electronics?

M N Vidyashankar: Reliance is investing to a big extent. Then there is Tata Power SED, L and T, Mahindra Aerospace are all investing big. They have plans for the next five to 25 years in the sector. Things are take shape, but the only thing is for electronics, the gestation is about 3-5 years unlike softwares, which can happen in 24 hours.  It will take that much time for India to say that now we are a global player.