New Delhi, Apr 11 (KNN) In a significant development, Kalraj Mishra, Minister for MSMEs has constituted a committee to review supply by MSMEs to the defence requirements.

Formation of the committee assumed significance in view of an ambitious defence modernisation programme focused on ‘Make in India’. The trillion rupee defence supply market in India has potential for MSME vendors to have a reasonable share.

The Committee, to be chaired by the Secretary MSME, will have representation of senior officials from Ministry of Defence and industry bodies namely CII, FICCI, FISME, LBU and FKCCI.

According to officials connected with the matter, the Committee is also expected to study implementation of public procurement order in defence supplies.

It may be mentioned that under the Order, each Government department and PSUs must procure at least 20% of their total requirements from MSMEs. However, a couple of Ministries like Defence, Home have been given exemptions from following the order.

It may be mentioned that today MSMEs are quite visible in procurement of Defence consumables which are basically the FMCG requirements of the servicemen and other equipment required for keeping the defence forces battle ready.

However, the number of MSMEs engaged in defence capital equipment supplies, i.e. the parts and components for tanks, ships and the aircrafts,  are very less, where the supplies by the  MSME vendors may be 1% of progressive acquisition budget of the Government (the budget for 2016-17 is about Rs. 95,000 crore).

FISME, the apex federation of MSMEs first time raised the issue before the then Defence Minister, Manohar Parikkar, at a seminar on participation of MSMEs in defence procurement about 2 years back.

This led to reservation of development projects in the defence upto Rs.10 crore for the MSMEs, where the entire development cost the ministry agreed to bear.

Led by Dr. Sangam A Kurade, President of FISME at that time had submitted a detail memorandum to the defence ministry on issues like, easy credit for development projects, institutional handholding and development of defence focused MSME clusters.

Commenting on the development, Anil Bhardwaj, Secretary General, FISME mentioned globally the MSMEs supply 50 to 60% of the value in development of defence ‘platforms’ and the large ‘aggregators’ like Boeings and Dassaults only assemble the Aircrafts.

Even US defence department have a dedicated programme for promotion of MSME suppliers for rockets and satellites, Bhardwaj said.

Actually, the defence capital market in India is monopoly of foreign suppliers, who supply the items lock, stock and barrel. A couple of years back, the Government introduced defence offset under which the large defence contractors are to source at least 20% of their contract value from India.

According to the knowledgeable sources, the offset backlog is about Rs. 40, 000 crore, which these suppliers must utilise to buy from India.

To promote procurement from MSMEs Government provide added leverage i.e. a  procurement worth Rs. 1 crore is taken as fulfilment of offset worth 1.5 crore if  procured from MSMEs.

Even then, without Government prodding these global firms has no interest to transfer technical knowhow to Indian vendors to make them eligible suppliers.

The former defence minister had introduced the strategic partner concept, under which a long term private partner was to be selected by the defence ministry for specific platforms like ship, howitzers, helicopters etc.

While some large houses  have already started preparations  to be such strategic partners,  whether they will develop Indian vendors for the components or take the easy route of ‘screw driver’ manufacturing, is a big question.

The MSME fraternity will eagerly wait how the committee constitute by the ministry will address these crucial issues….(KNN/ DB)