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Potential for SMEs in the Defense Sector27 July 2012

If self-reliance is the national objective,there is a greater need for participation ofIndian SMEs in Defence Sector.Potential for SMEs in the Defense Sector27 July 2012

Like the nation lives in its villages, theindustry lives in SMEs.…True & holds good for the Defence &Aerospace industry.Potential for SMEs in the Defense Sector27 July 2012

It is largely the SME structure thatcontributes to self reliance of the Nation ingeneral, the Defence Industry now inparticular.Potential for SMEs in the Defense Sector27 July 2012

Contents:‣ Overview‣ Opportunities for SMEs in Defence Sector‣ Quality of Participation & Challenges for SMEs‣ Recommendations‣ ConclusionPotential for SMEs in the Defense Sector27 July 2012

Overview of SMEs:• The SME (Small & Medium Enterprise) segment inIndia has recently been receiving much more attention.• After introduction of Micro Small & MediumEnterprises Development (MSMED) Act 2006, thesector is being increasingly viewed as an agent foreconomic growth by corporate bodies and banks.• The focus of the policy and Govt’s thrust towardspromoting the SME segment, along with globalizationand India’s robust economic growth.Potential for SMEs in the Defense Sector27 July 2012

Opportunities:‣ Presuming the same rate of growth, the totalDefence Capital budget allocation during the12th Plan is likely to be Rs. 4,45,500 Crores.‣ The capital acquisitions budget ranges betweenof 75% to 85% of the total capital expenditureand is likely to be around Rs. 3,56,400 Cr.Potential for SMEs in the Defense Sector27 July 2012

‣ DPP policy is encouraging participation ofIndian Industries in Defense Production.‣ ‘Make’ procedure has been formulated toensure design, research, development andproduction of indigenous defence equipmentthrough optimal utilization of the potential ofIndian industry.Potential for SMEs in the Defense Sector27 July 2012

‣ The introduction of a new category ofacquisition ‘Buy & Make (Indian)’ in DPP-2011 enabled Indian industries to acquiretechnology from foreign OEMs and tomanufacture the product in India.‣ Since the introduction of offsets, contractsworth about $ 4 billion have been concludedso far. Thus, there are now tremendousopportunities available which will spur thegrowth of the SMEs in defence industry.Potential for SMEs in the Defense Sector27 July 2012

Projected Defense Capital Expenditure:Potential for SMEs in the Defense Sector27 July 2012

Potential in Defense Electronics:‣ The Defence Electronics sector is likely to see ahigh growth during the 12th Plan period.‣ Navy and IAF are likely to contribute about15% each, the bulk of the demand (about 70%)is expected from the Army.‣ Network Centric Systems, Radars,Communication Systems, Electronic Warfareand Electro Optic equipment will be in demand.Potential for SMEs in the Defense Sector27 July 2012

Major products & Systems‣ Long Range Surveillance Radars‣ Weapon Locating Radars‣ Multi function Radars‣ Mountain Radars‣ Tactical Communication Systems‣ Software Defined Radios‣ EW Systems for different terrains‣ Battlefield Management SystemsPotential for SMEs in the Defense Sector27 July 2012

‣ Unmanned Aerial Vehicles and Aerostats‣ Electronic Warfare Suites for Fighter Aircraft‣ Long Range Electro Optical SurveillanceSystems‣ Thermal Imager based Sights for Tanks &Weapons‣ Image Intensifier based Passive Night VisionDevices and Weapon & Missile SystemsPotential for SMEs in the Defense Sector27 July 2012

Defense Electronics Projections:Potential for SMEs in the Defense Sector27 July 2012

Opportunities for SMEs inDefence Sector(Electronics):‣ Radar Electronics‣ Missile Electronics‣ Electronic Warfare‣ Avionics‣ Ammunition Electronics‣ Other segmentsPotential for SMEs in the Defense Sector27 July 2012

Radar Electronics:‣ Antenna Electronics‣ Transmitters‣ Receivers‣ Exciters‣ Front End Amplifiers‣ Power Amplifiers‣ Signal processing unitsPotential for SMEs in the Defense Sector27 July 2012

Missile Electronics:‣ Telemetry Systems‣ Checkout Systems‣ Tracking systems‣ Radio Proximity Fuse‣ Guidance Unit‣ Seekers‣ On board computers‣ AntennaPotential for SMEs in the Defense Sector27 July 2012

Components and Sub-Systems forElectronic Warfare(E.W.)‣ Wide Band Super Components and Sub-Systems for D. F.Receivers.‣ Advanced RWR, ESMs, ECMs/Jammers and Simulators forGround, Air & Naval Applications.‣ Advanced Channelized Receivers.‣ Digital Receivers.Potential for SMEs in the Defense Sector27 July 2012

Avionics: Next generation fighters, UAVs UAV upgrades‣ Data link systems (up link / Dn link)‣ Power Amplifiers‣ Onboard computer‣ Telemetry system‣ Ground control systems‣ AntennaPotential for SMEs in the Defense Sector27 July 2012

Ammunition Electronics:‣ Transmitters‣ Receivers‣ Proximity fuse‣ Simulators‣ Safety Armament Mechanisms‣ AntennaPotential for SMEs in the Defense Sector27 July 2012

Opportunities in Other segments‣ Secure communication systems including SDRdevelopment Platforms and Units.‣ Command, Control, Communication and Computertechnologies (C4I Technologies).‣ Dual-use technologies for civil and military use inradar, communications and data acquisition systems.Potential for SMEs in the Defense Sector27 July 2012

Quality of Participation of IndianIndustries:‣ Long term vision.‣ Core expertise in design & development ofcomponents & Sub-systems.‣ Patience & sustaining power for long gestation periodfor production volumes.‣ Basic infrastructure to cater to the need ofdevelopment & production phase.Potential for SMEs in the Defense Sector27 July 2012

‣ Great sense to Quality management systems and processdrivenapproach.‣ Streamlined methods and talent accumulation.‣ PLM based approach in design & development, automatedscheduling and production mechanisms.Potential for SMEs in the Defense Sector27 July 2012

Challenges for SMEs inDefence Sector:• Restricted technologies: Restricted access to defencetechnology, particularly in areas of electronics &communication, missiles and smart ammunition; whichis closely guarded by firms and nations. The lack ofaccess to critical technologies, many of which are ofdual use, delays the projects.• High R & D cost: Prohibitive cost of R&D fordevelopment of cutting edge technologies which isfurther accentuated by the lack of synergy between theinstitutions working in this area.Potential for SMEs in the Defense Sector27 July 2012

• Volatile Market: The Defence industry being volatile innature, companies find it difficult to commit adequatefunds for R&D in the absence of guaranteed business atthe end of the development cycle.• Low volumes and high technology equipment: Lowvolumes of high technology equipment are unattractiveto qualified vendors.Potential for SMEs in the Defense Sector27 July 2012

• Lack of human resource policies/staffing challengesFinding and retaining talent, sourcing specialized skillsand training are some of the key issues that SMEs needto tackle.• Ability to pay competitive wages: To retain theirmanpower, SMEs need to pay competitive wages.• Stringent Statutory requirements: EUCs for importsand license for Exports.Potential for SMEs in the Defense Sector27 July 2012

• Financial constraints: Financial planning andmanagement is critical for SMEs to procure working andlong-term capital. Most SMEs face challenges incontrolling their cash flow, justifying capitalexpenditure, negotiating favourable deals and balancingquality and costs.• High processing and monitoring costs of loans to SMEs:This is the result of complicated loan disbursementprocedures.• Project preparation and evaluation: SMEs often lackthe ability to formulate a proper project proposal. NoProtection for cost overrun....loosing margin at the end.Potential for SMEs in the Defense Sector27 July 2012

Recommendations:• The Government should support R&D activity,especially SMEs, by providing assistance for R&Dactivity. MOD to earmark development funds forSMEs.• To synergize the R&D talent available in privateand public sectors as well as in the academia, aCentre of Excellence for Defence Electronicsshould be created on a PPP model aimed atgeneration of indigenous IPRs.Potential for SMEs in the Defense Sector27 July 2012

‣ Selection of Development cum Production partner should alsotake into account the technical merit (T1)of the organizationsinstead of L1 based evaluations.‣ Commitment from DRDO on development units to productionvolumes and at least a sizeable volume share of the orders.( MOUs to be signed).‣ DRDO may support Industries in building special facilities likeEMI/EMC, NFTR test facilities and to extend foundry serviceson GO-CO Model..Potential for SMEs in the Defense Sector27 July 2012

• PPP model: As most of the work in this sector hasbeen done by Government organisations, the PPPmodel by forming JVs should be encouraged inorder to fully exploit the knowledge base coupledwith entrepreneurship of the private sector.This will result in the expansion of defenceindustrial base in the country and to make the Indiandefence sector highly competitive and efficient.Potential for SMEs in the Defense Sector27 July 2012

Conclusion:MOD/DRDO should promulgate their future plansso as to gear up the Indian SMEs to meet theDefence strategic requirements.Potential for SMEs in the Defense Sector27 July 2012

THANK YOUPotential for SMEs in the Defense Sector27 July 2012