India’s capital expenditure for defence procurement is expected to be around INR 15,00,000-18,00,000 Crore (USD 200-250 billion) over the next ten years, and ‘Make in India’ has been the cornerstone of the Government of India’s policy to promote indigenous defence production in the country. The government has also undertaken several reforms related to the aerospace & defence (A&D) industry in the last few years. These include industrial licensing, a new export strategy and detailed standard operating procedures for granting no-objection certificates to the industry for certain defence exports.
Also, the FDI limit in the defence manufacturing under automatic route has been raised from 49 percent to 74 percent and 100% through government approval. Introduction of IDEX programs for the promotion of startups in the A&D sector and funding support, allowing private industry and DPSUs to form strategic partnerships with foreign OEMs for R&D and development of various platforms for defence acquisition, the introduction of offset clause on import contracts and promulgation of negative import lists are to name a few initiatives.
These initiatives are aimed to enable India to capitalise on the investments made and capabilities created in the Indian industry during the last few years. On 1st February 2018, Prime Minister Shri Narendra Modi announced another critical initiative incubating two “Defence Industrial Corridors” in Tamil Nadu and Uttar Pradesh.
The announcement was made to develop the corridors as manufacturing and service hubs to meet the requirements of the defence industry with plans of developing common facilities and testing infrastructure along the corridors to facilitate the industry achieving its full potential. Many initiatives have been taken in the last three years, and it may be a good time to look at some of them. In this article, we will focus on the Tamil Nadu Defence Industrial Corridor (TNDIC).
Tamil Nadu traditionally has a conducive business environment and integrated infrastructure. It is India’s sixth-largest state by population and second largest by gross state domestic product (GSDP), the value of which was USD 187.6 billion in 2019–20. It continues to rank among the coveted investment destinations in India.
As part of the TNDIC, five industrial nodes, namely Chennai, Hosur, Salem, Coimbatore, and Trichy, have been identified and these places are very well connected with each other and the rest of the country. Numerous MSMEs are also operating in these clusters. The strategy developed by the Government of Tamil Nadu to develop the corridor encompasses the following.
- Establish standard manufacturing and testing facilities in collaboration with the private industry to benefit MSMEs to undertake Jobs and services related to the A&D sector.
- Provide additional incentives to industries investing in the TNDIC.
- Support the R&D initiatives of the private industry by way of funding the developmental costs and other costs specific to such activities.
- Skill development through the introduction of courses specifically catering to the specialised needs of the A&D Industry.
- Invite and incentivise anchor A&D units to set up their facilities in Tamil Nadu.
To implement the strategy, Tamil Nadu was among the frontrunner states to develop a state-specific A&D policy launched in January 2019. Objectives of the policy were the following: –
- To create an ecosystem for aerospace sector development covering end-to-end activities encompassing design, engineering, and manufacturing of aircraft for the civil and defence sector.
- To attract an estimated investment of about USD 5 billion in five years and an estimated investment of approximately USD 10 billion in 10 years in the A&D sector.
- To generate direct and Indirect employment opportunities for around 100,000 persons in 10 years.
- Harness and leverage inherent strengths of the state in the automotive manufacturing and ICT sector for exploring opportunities in A&D manufacturing.
- To create a global workforce for high-end manufacturing by establishing the Centre of Excellence (CoE), R&D and skill development institutions.
- To attract global OEMs and Tier-1 suppliers and Indian majors as anchor units in the state by providing required facilitation and support.
The state is also promoting MSMEs industry clusters by developing CoE for common manufacturing, skill development and testing centres to increase participation and support growth. Setting up Chennai Aerospace Park, which would also host an Advanced Computing and Design Engineering Centre named AeroHub, is one initiative.
Tamil Nadu is also home to some of the best academic institutes and a large pool of trained manpower. An extensive network of engineering companies with international accreditations stands testimony to this. To arm the human capital available in the state with the required skills to make them A&D industry ready, the Government of Tamil Nadu, in collaboration with various educational and industrial organisations, is setting up many skills development centres in multiple nodes.
A skill development centre, jointly set up by the Boeing Company and the Lakshmi Machine Works at Coimbatore, is already functional and more such centres are in advanced planning and implementation stages. CoEs in Chennai for Additive Manufacturing for Aero Engine Parts (GE Aviation), Advanced Manufacturing Experience Center, and A&D products and skill development and CoE for Product Development Center at Hosur are also being established.
The government is also developing defence parks in each node. Besides Chennai Aerospace Park, work for parks at Sulur (Coimbatore), and Ulundurpet has also started. Vendor parks for prominent players are also being developed. Common testing facilities also form an essential part of the plan. Some of these facilities include RF and Antenna Testing facility in Chennai, Mechanical Test Center in Trichy, General Engineering Testing facility at Coimbatore, UAS Test centre at Ulundurpet and Integrated Material Management Facilities at Hosur and Coimbatore.
The government also have announced specific attractive incentives like Anchor Unit Subsidy of Rs.10 Crore for the Tier-1 companies and the OEMs or their suppliers with a minimum investment of Rs 50 Crore each and direct employment of 50 persons, reimbursement of 50% of the cost of certification from Indian and International bodies to the industry subject to a ceiling of Rs 25 lakhs per unit, 20% concession on the land cost for A&D units, electricity tax exemption up to 100% for first 10 years for new units, 10% subsidy of fixed assets for MSME industry investment and developers of A&D parks. The government also has announced attractive tax refunds for MRO activities in the state.
Concession of up to 30% of land cost and 100% reimbursement from stamp duty will be part of special support for the units undertaking Offset obligations. Additionally, for investments, over INR 30 billion special incentives will be offered on a case-to-case basis. The government also conducts regular workshops for MSMEs for them to understand specific requirements of the A&D sector.
Recently, The Tamil Nadu Industrial Investment Corporation Ltd (TIIC), a premier state-level financial institution and the strategic arm of the state government, in its growth catalyst role, has signed an MoU with the Society of Indian Defence Manufacturers (SIDM) and Confederation of Indian Industries (CII) to proactively catalyse and facilitate defence manufacturing in the state. Shri Hans Raj Verma, CMD, TIIC and Shri JD Patil President, SIDM, exchanged the MoU in the presence of Minister for Industries Mr Thangam Thennarasu for SIDM and CII to jointly work towards the creation of a conducive ecosystem for developing the defence industrial base in the state.
As per a statement issued by TIIC through this partnership, in the first phase, at least 20 champion industries in each of the five nodes will be identified and will be enabled with guidance and support for enhancing their technological capabilities to meet the demands of the A&D sector. The partnership intends to address the needs of the industry in meeting the defence requirements, skill development, infrastructure buildup and investment promotion in the defence manufacturing sector in the state.
Another state government organisation responsible for developing the corridor Tamil Nadu Industrial Development Corporation Limited (TIDCO) is also actively engaging with national level sector-specific defence industry associations like SIDM. These are very positive developments and augurs well for the corridor.
The ground is now fertile and ready for unleashing the full potential of this corridor that can act as a role model for many such future initiatives in other parts of the country.