Indian Defence Review

Defence industrial production corridors

A defence corridor refers to a route or a path along which domestic productions of defence equipment by public sector, private sector and MSMEs are lined up to enhance the operational capability of the defence forces. Budget 2018-19 proposes to develop two defence industrial production corridors, the locations of these corridors are strategically decided, taking into account a natural ecosystem. The first corridor plans to link Chennai and Bengaluru and will pass through Coimbatore and several other industrial clusters. The Southern corridor will extend from Chennai, Hosur, Coimbatore, Salem and Tiruchi. MOD has initiated a consultation exercise with the industry and MSMEs, at the five nodal points in the Sothern Corridor. A Detailed Project Report (DPR) will be prepared by a top consultancy firm for the ‘Tamil Nadu Defence Quad’. The second corridor will be in Bundelkhand — a region divided between Uttar Pradesh and Madhya Pradesh. As per news report, this will be – a Rs 20,000-crore defence industrial production corridor, which will generate 2,50,000 jobs.

As most of the design and prototype building centers are concentrated in Bengaluru and Chennai with a concentration of DPSUs and DRDO laboratories, it is logical and strategic to have the first brown field corridor. However, the intention behind the second corridor is the regional development. Thus, the first corridor compared to the second will benefit out of the existing industries, academic and research laboratories around the same.

Suggestions

No country can excel in all the areas of Defence Manufacturing, giving constraints of its resources. India should seek global leadership in only select areas that are “Critical-to-Security”. The Dual-use Application Program(DuAP) in US and Civil–Military Integration Promotion Department (CMIPD) in China have become successful models for civil-military integration. Since FDI in defence calls for deeper scrutiny, India can start promoting FDI in non-defence R&D and then leverage on the technologies for defence applications.

All the existing players need to have a presence in the Defence Corridors, from the USERs, QA Establishments, DPSUs and OFBs, DRDO lab. If they cannot relocate, they can have suitable outreach facilities with suitable empowerment to the officers manning then, so that local level coordinating decisions can be taken without being sent upwards for validation of concept, for formation of consortium for Mission-Mode Projects. The two centers of Excellence proposed, one for Electronics, the other for Advance Materials need to be set up in the Corridor. Special Industry 4.0 oriented training centers can be put up to support the industry in adoption of new standard. Special support should be given for Robotics, artificial Intelligence, Cyber Physical Systems, Data and Internet Security.

Corridors can assist in adoption of Lean Manufacturing to reduce the waste at various stages of the supply chain by adoption of Kaizen, TQM and Six Sigma etc. Necessary mechanism to access the Consultants on easy terms can be coordinated. The operational capability of the Industry can be enhanced by complimentary investment from the Government by using the resources from SME exchange.

Small steps like allowing High quality Arbitration and Adjudication Mechanisms, Industrial Courts to resolve contractual issues in fast track mode, CEO of the Special Purpose Vehicle, empowered to give the construction Permit in the cluster; effectively strengthening single window system through IT integration would go a long way in addressing the pending burning issues to improve rank in ‘Ease of Doing Business’.

Corridors can assist in setting up Credit Rating System. They should clearly communicate what they are looking for, and what information SMEs can provide to ensure that the rating is favorable. This would enable them to tap loans or equity investments from the SME Exchange. A graduated level of Charter membership of the Corridor can be given, given unit’s contribution to Exports, R&D, Turnover, so that graded system of benefits can be given by the CEO with his discretionary powers without being pushed upwards. Corridors can assist the SMEs connect to social venture capital funds, mentoring networks, and entrepreneurship groups. Corridors can put up effective single window system by integration of its IT architecture.

Corridors can assist the SMEs to adopt innovative information and communication technologies on a large scale like Software as a Service (SaaS) and Infrastructure as a Service (IaaS) to achieve cost-effective, improved versions of existing products on pay to use service.

Corridors can assist SMEs for Co-Creation of products and marketing. For example, IT Company can work with an engineering company and develops software to track all information. This software once it passes the rigors of testing and can be made available without unnecessary investment in in-house capability and research.

Corridors can set up Design bureau in line with Russia, where continuum synergy is maintained between scientific institutes, design bureaus, and in-house industrial research units. Scientific institutes are the main source of new ideas for products and processes in the Russia, involved in fundamental research. Design bureaus were differentiated as those that designed structures or designed new products and processes, which begin their work after receiving the initial research and development phase from scientific institutes. Design bureaus transmit working drawings and other technical documents for prototype testing or directly to the end-user production facility to an experimental factory. The large scale system integrators like OFB and DPSUs can set up their design bureaus, assisting SMEs to develop new products.

Conclusion

With globalization, there is an urgent need of a dynamic and self-sustaining culture of innovation and cluster based approach for the development of MSMEs. In the “Knowledge-Based Economy”, Competitive advantage is less derived from access to physical resources and more from the ability of organizations and societies to generate ideas and to translate them into economic and social value. The innovation potential can be significantly enhanced with clusters, as seen in Silicon Valley, a hot bed of innovation. The density of the starts up makes it entrepreneurial. The cluster allows seamless flow of people, ideas and capital making it hotbed of innovation. Such a Defence Corridor with academia industry hand in hand would promote collective learning; ensure steady supply of the skilled manpower. Such cluster’s dense social networks and open labour markets would encourage experimentation and entrepreneurship.

Investment required for creating a new cluster is pretty high. It is not known whether there will be FDI flow resulting in new facility, shifting of existing facility under large industry to this hub and finally MSMEs shifting to this hub. Thus, it would be more prudent to improve existing clusters rather than creating new ones. Thus, Defence Corridors is a welcome step by the Government. To ensure presence of all stakeholders, the CEO of SPV should be allowed to provide preferential treatment to the units outside the corridor to relocate in the corridor.

Defence Corridors to be effective must address the issues being faced by the SMEs, such as access to finance, market and knowledge. Corridors can assist in setting up Credit Rating System; enable them to access capital through SME exchange and assist the SMEs connect to social venture capital funds, mentoring networks, and entrepreneurship groups. Corridors can assist the SMEs to adopt like Software as a Service (SaaS) and Infrastructure as a Service (IaaS) through cloud computing to enable access to the technologies. Corridors can assist in adoption of Lean Manufacturing to improve their operational capability. Corridors can set up Design bureau by the large scale system integrators like OFB and DPSUs, assisting SMEs to develop new products. Corridors can facilitate testing, IP services and improve the quality of the infrastructure by better communication network.

The benefits proposed to be made available for NIMZ, such as job loss policy, expeditious approvals and clearances, ‘green’ incentives, etc. should be extended to Defence Corridors. In tune with the trend for Smart manufacturing, Defence Corridors can create a virtual information network to link all stakeholders. Defence Corridors can form the important link between Industries and ‘Make in India’ mission, not only through formal mechanism of co-location and delivery of world-class infrastructure and business services, but through informal networking of stakeholders, industries leading to unlocking of innovation potential of Indian Industries.