SIDM suggests lockdown exit strategy for the defence sector

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Published: April 29, 2020 6:53 PM

According to the note several companies, bulk of which are MSMEs in the defence sector are facing bankruptcy and has urged the government to take steps to help them remain self-reliant.

With the limited export potential of the domestic industry also being hit by the lockdown, the defence enterprises have indeed no other door to knock on.With the limited export potential of the domestic industry also being hit by the lockdown, the defence enterprises have indeed no other door to knock on.

The Society of Indian Defence Manufacturers (SIDM) has asked for the aerospace and defence (A&D) industry to be treated on a different footing than other sectors as the defence companies are mostly dependent on the government for their survival. A note circulated recently by SIDM on the calibrated exit strategy for the A&D sector from the ongoing lockdown lists out several steps it wants to be taken by the government immediately.

“Allowing gradual resumption of manufacturing activity, assurance that the present crisis would qualify as force majeure, releasing all outstanding payments and tax refunds, extending fiscal support to mitigate working capital stress, providing respite from the financial obligations that the industry owes to the banks, enabling the execution of export orders, speeding up the release of orders and the stalled procurement programmes, are some of the measures suggested in the note,” opines Amit Cowshish, former Financial Advisor (Acquisition), Ministry of Defence.

Defence is a monopsony in which the Ministry of Defence is its main benefactor. With the limited export potential of the domestic industry also being hit by the lockdown, the defence enterprises have indeed no other door to knock on.

The disruption in all manufacturing and business activities, without a corresponding assurance of respite from fulfilling contractual and other financial obligations have put the very survival of this industry at a grave risk.

“The risk is all the more sombre for the 8000-odd micro, small and medium enterprises operating in the A&D sector and 500+ start-ups that have come up in the last four or five years, thanks, in part, to the innovations for defence excellence (iDEX) scheme launched two years back.”

“There is no denying the stress faced by the defence industry, but considering the slowing down of the government’s own revenue earnings and tremendous pressure for similar fiscal relief from the states, other sectors of the economy, and indeed the society at large, the government’s most earnest response could fall short of the expectation,” Cowshish concludes.

What has SIDM suggested?

In a detailed note to the MoD it has talked about several issues and flagged concerns of the private sector.

Outlining the exit strategy post lockdown it has recommended that the defence sector be placed under the essential services so as to protect the ecosystem.

It has suggested that some work from the DPSUs as well as OFB be outsourced to the private sector.

Anticipating cut in government spending and holding on to highly skilled labour, the the industry has asked the MoD to consider transferring funds which have been earmarked for payments to companies in the US, Russia, Israel and the European Union be redirected to domestic companies.

According to the note several companies, bulk of which are MSMEs in the defence sector are facing bankruptcy and has urged the government to take steps to help them remain self-reliant.

It has cited the example of steps taken by governments in countries including the US, Australia and South Korea.

Besides seeking a calibrated opening up in which the workforce ramps up to 60% in three weeks, the letter has suggested that the ministry issue directive for the Services, DRDO, OFs and DPSUs to prepare the list of projects, duly prioritized, where the private sector can help by ramping up efforts to complete the projects.

It has also urged the ministry to help get the pending payments from the services and the public sector is cleared on a priority basis.

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