While the Indian defence sector started to evolve with numerous Make in India initiative: COVID-19 halted the manufacturing process.
The novel coronavirus (COVID-19) pandemic has shaken-up the entire world with disruptions created in the societies. It has led to an unprecedented economic crisis among all the business sections. The MSMEs (Micro, Small, and Medium Enterprises) are considered to be the backbone of the economy but the prolonged lockdown has adversely affected them. It has led to a reduction in demand and collapsing trade flow activities. Economists are considering the adversely to be bigger than ‘The Great Depression of 1930s’.
A study done by Ernst & Young forecast the coronavirus led-prolonged lockdown will wipe out about 40 percent of defence sector’s MSMEs within three months. The study further says “It is anticipated that due to complete halt of all activities, the problem of cash flow, raw material prices and logistics problems will arise after lockdown is over”.“It appears that complete revival of any MSME shall require at least 6-12 months.” The major crisis will be faced by the modernisation of defence equipments. Due to the coronavirus there is a high possibility of the government putting the modernisation halted for a specific period. The lockdown has affected the supply of spare parts for aircraft maintenance at Hindustan Aeronautics Limited (HAL). Sources at the HAL said to Economic Times that the supply of spares to the defence services by it has been affected, because the supply chain was “disrupted” and remained “standstill” during the lockdown. This is in regard to raw materials required for manufacturing, bought out finished parts as spares for use in sub-assemblies, assemblies, line replaceable units (LRU) repair and fresh LRUs. The delay in spares due to the pandemic has also delayed repairs. When asked about western suppliers, they said, “Major suppliers of spares are of western and Russian origin and they are currently under lockdown, resulting in spares supply delays. Spares are also delayed because most of the OEMs have invoked force majeure and postponed supplies, due to lockdown in the western countries and Russia; and difficulties in cash-flow due to pending payments from our customers.”
Impacts of Lockdown on MSMEs are multi-fold with private defence industry resulting to incur high losses. The private defence industry has to bear the wages of all the employees without any sort of production resume. The Society of Indian Defence Manufacturers (SIDM) along with other state players during an E-conclave with Raksha Mantri Rajnath Singh has put forward all their concern faced by private and state-run defence industry. The minister said, “I am very happy to know that SIDM has accelerated the manufacturing of DRDO (Defence Research and Development Organisation) designed PPE (Personal Protective Equipment) kits, masks, ventilator parts in the field of defence industry by efficient coordination and channelisation. Within less than two months, we have not only met our domestic demand, but we can also think of helping neighbouring countries in the coming time.”
Raksha Mantri termed MSMEs backbone of Indian economy that accelerate GDP growth, earn valuable foreign exchange through exports and provide employment opportunities. Keeping MSMEs strong is one of the priorities of the Government. He said, “There are more than 8,000 MSMEs, tiered partners of many of our organisations – Ordnance factories, DPSUs and service organisations. They contribute more than 20 per cent of the total production of these organisations.” Acknowledging the hardships faced by the defence industry, Rajnath Singh said, “Manufacturing sector has been affected the most due to lockdown and disruption in existing supply chains and the defence sector is no exception to this. Rather, it can be said that the defence sector is more aggravated than other sectors as the only buyer of defence products is the government.” The SIDM has conducted many interactions with senior officials of the Ministry and the Armed Forces since the lockdown came into force. This has given an opportunity to get to know the problems of defence industries and many suggestions for their prevention have also been received from SIDM.
The defence secretary Dr. Ajay Kumar in a statement to The Indian Express said, “We have extended last date for responding to the EOI/RFPs for capital procurement to 1 June, 2020 to enable them to participate effectively. Similar approach is also adopted for revenue procurements by the Department of Military Affairs. All DPSUs agreed to expedite payments to MSMEs. Big Government PSUs and Departments like OFB, BEL, BEML, MDL have already made sure that payments due are being immediately once the due is established. Department of Defence Production is working with DPSUs and OFB in this regard. Orders have been issued that disruption of supply chain due to COVID-19 would be considered as Force-Majeure and provisions of Force Majeure clause may be invoked wherever necessary.” He further said , “We have also extended the time for consultations on the draft DPP 2020 which was supposed to end on 17 April, 2020. This will provide some more time for industry to prepare their response to the public consultation process which is underway but some industry was not able to attend to it due to COVID-19 related constraints.”
Speaking on the announcements made by Finance Minister Nirmala Sitharaman to support the MSMEs sector during the coronavirus crisis Rajnath Singh said, the announcement of a collateral-free loan of three lakh crores for MSMEs- this will be effective in re-establishing about 45 lakh units and saving employment. Subordinate debt provision of Rs 20,000 crore has been announced for two lakh MSMEs, this will help stressed MSMEs. Equity infusion of Rs 50,000 crore will be provided through the ‘Mother-Daughter Fund’ for the purpose of benefiting the needy MSMEs. About Rs 10,000 crore ‘Fund of Funds’ will be set up to help increase the capacity of these units and for marketing. The coronavirus has provided the required space to the domestic defence sector to come out with innovative projects that will eventually help to achieve Prime Minister Narendra Modi’s dream of making India a defence manufacturing hub. The Prime Minister calls for ‘Aatma Nirbhar Bharat’ will provide many crucial opportunities to the Indian defence industry and it will also be helpful in the creation of millions of jobs.