New Delhi, Dec 11 (KNN) On one hand the government is promising to pitch in more and more SMEs for better involvement in the supply chain management for the Defence Sector, while on the other hand financial criteria proposed by the expert committee has highly disappointed the MSME suppliers. Turnover and financial criteria for similar works is basically an easy filter for the tendering entity to administer, opined an MSME entrepreneur adding that "it is a very imperfect filter".

The recommendation of Aatre task force, set up to identify Indian private companies as strategic partners for development of critical military platforms, has proposed weightages and assets criteria which allow only a few Indian private defence manufacturers to qualify for strategic partnerships. The move, according to the experts, will hit the aspiring MSMEs badly.
 
Union MSME Minister Kalraj Mishra, while inaugurating the MSME DEFEXPO on Thursday in Bengaluru, said “The focus of the government is now on enabling SME sector for supply of equipment, machineries and general consumables and adding SMEs in the supply chain of high technology products and services related to defense sector.”

Even the Defence Minister Manohar Parrikar, while addressing a seminar on ‘Opportunities for MSMEs in Defence Sector, organized by Federation of Indian Micro and Small & Medium Enterprises (FISME) in June had said that, “It is actually the small sector which is real power centre for innovation and finding out new ways.”
 
But, the Aatre Committee, set up by the Defence Ministry, has proposed the ‘strategic partnership model’, which according to the experts does not visualise MSMEs playing the leading role in the development of strategic platforms, systems or material.
 
“The country has imported defence equipment in the last few decades. The import costs were high, resulting in high benchmark costs of these equipment. Translating this to financial pre-qualification criteria will mean a self-perpetuating phenomen and will keep local cost effective suppliers out of the fray indefinitely,” said D C Sekhar, Director, AlphaMERS Ltd. 

“Even if it is a cumbersome system, a more complex regime must be adopted to grade and empanel vendors, factoring in the complexity of their current products, production volumes in material terms and their past track record,” he argued. 

Shekhar was optimistic that the Indian SMEs will be able to offer very comprehensive spares and repair support. “This will compensate for their smaller brand values and shorter track record,” he said. 

Shekhar also sought for financial support from the government for innovation at SME level, at the risk of a couple of failures. “The long term advantage of indegenous IPRs is simply huge.’Design in India' is after all just one step away from 'Make in India',” he said.

Further, Gp Captain Sanjiv Aggarwal, Senior Advisor- Aerospace & Defence, opined that, "It is becoming apparently clear from the recent briefings given by the Defence Minister that the government has by & large accepted the Dhirender singh committee’s report and that Aatre committee report , which is due this week, has also accepted Mutatis Muutandis the main issues and has only amplified these issues by suggesting the methodology for its implementation.”

“If the financial criteria finalised by the task force is implemented, the MSMEs will automatically get ruled out as potential strategic partners on account of the financial criteria,” Amit Cowshish, a Distinguished Fellow with the Institute for Defence Studies and Analysis (IDSA) told KNN.

According to a media report, the Aatre task force has recommended formation of two committees to evaluate the private companies for strategic partnership: an evaluation committee and an on-site committee.

The evaluation committee will evaluate a private company on three criteria, each with different weightages: 50 per cent on technical criteria, 30 per cent on financial criteria and 20 per cent on platform specific criteria. The most contentious among these is the financial criteria, where the task force has recommended that the foreign holding for listed companies should be less than 5 per cent, while no foreign holding should be allowed in an unlisted company.

To qualify for strategic partnership, a listed company should have annual assets worth at least Rs 750 crore during the last three years while the corresponding figure for a unlisted company is Rs 250-500 crore.

The annual turnover during the last three years for a listed company has been recommended at Rs 4,000 crore for a listed company and Rs 1,000 crore for an unlisted company.

“An entity will not be a micro, small or medium enterprise if it has annual assets worth at least Rs 750 crore during the past three years (or even Rs 250 crore if it is an unlisted company), as is being recommended by the committee (going by the report),” said Cowshish. 
 
“In a nutshell, as I see it, the report, as published in one of the leading daily’s, does not seem to offer anything to the MSMEs to cheer about,” he added.

Meanwhile, Gp Captain Aggarwal said, “The basic tenet of any expenditure by the government is governed by the principle of paying fair price which can be achieved only through a fair competition. The private companies so far have been fighting for a level playing field vis a vis PSU’s but instead of addressing these issues the committee has resorted to creating monopolistic practices or by advising to award contract to private companies and select OEM’s through nomination process.”

“The other misconception of the committee is in their thinking that smaller companies will not be able to execute big projects. Taking this as the gospel truth the committee has laid down selection process by which all small companies gets eliminated automatically,” he said adding that imagining that theses competencies may not be possessed by a smaller company is a fallacy". (KNN Bureau)