Opportunities Galore For Indian Smes In The Defence Sector

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Indias defence budget (capital plus revenue expenditure) at present stands at US$26.5 million

, making it one of the top 10 countries in the world in terms of military expenditure. Moreover, the country is expected to spend close to US$100 billion on defence procurements during the Eleventh Five Year Plan (20072012) period.

This increase in spending on defence procurements will open up significant business opportunities for Indian SMEscontributing 50% of the countrys total industrial outputin the aerospace and defence sector, says the CII-Ernst&Young (E&Y) report titled Enhancing role of SMEs in Indian Defence Industry. To make the most of this increased spending, SMEs can integrate themselves into the supply chains of national and international defence majors.

There is no doubt that the CII-E&Y study will uplift the mood of the small firms, which have been hard hit by the global economic recession, says Soham Chatterjee, a Kolkata-based analyst.

Report findings

According to the report, the Indian defence sector currently comprises over 6,000 SMEs, which supply around 2025% of components and sub-assemblies to the Defence Public Sector Undertakings (DPSUs), ordnance factories, Defence Research and Development Organisation (DRDO) and the armed forces.

To achieve self-reliance in defence production, the government is striving hard to set up joint ventures and technical collaboration with foreign original equipment manufacturers (OEMs) as well as their tier I and tier II vendors.

The report has also found out that these global OEMs prefer to work in close-coordination with SMEs and their prime contractors, due to three following plus points:

* Innovative capabilities in niche manufacturing

* Lower overhead costs

* Ability to absorb new technologies

These clearly point out that the defence sector is emerging as a lucrative market for the small firms, says Naresh Ummat, managing director of Barracuda Camouflage (P) Limited. Mr Ummat further added that SMEs that are keen to venture in this sector should emphasise on innovation and adopt quality standards to offer complete sub-systems.

Going forward, the Indian government needs to support and enhance the role of SMEs in the defence sector to emerge as a leading defence player in the world.

by: David Parks

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