Saturday 23 October 2021, 08:20 AM
Does the MoD need to intervene and tweak UP def corridor policy?
By Sushil Sharma | Bharat Defence Kavach | Publish Date: 7/27/2019 7:27:26 PM
Does the MoD need to intervene and tweak UP def corridor policy?

Faced with initial hurdles of  setting up  a  ‘defence corridor’ in Uttar Pradesh, the Ministry of Defence (MoD) led by Rajnath Singh is now looking to hire sector-experts as resource persons to guide  the establishment of the defence manufacturing units in the state. The MoD is also working around a formula that will result in investments materializing.  

The MoD and the UP Government need to widen their ambit, a slew of incentives are on the cards. The UP government has a Defence and Aerospace Manufacturing Policy; the new proposed incentives are for new units to come up in designated areas. However, existing units   will not gain much.  Rajnath Singh, a former Chief Minister of UP and now an MP from Lucknow, reviewed the policy last week. 

PM Narendra Modi in February had laid the foundation of the corridor expected to come up on over 5,000 hectares around the six nodes of Lucknow, Kanpur, Agra, Aligarh, Jhansi and Chitrakoot. This in a way binds the industry to these areas to claim benefits just like the tax-sops of hilly states led to industry setting up units.

The Government in August 2018 announced that the corridor has committed investments worth Rs 3,700 crore – largely from public sector units. The target is to attract Rs 20,000 crore of investments for which the UP government has proposed changes to its Defence Policy-2018 – some portions look to take example from policies of Gujarat and Tamil Nadu. 

The suggested incentives by the UP Government:  These include allowing companies to upfront only 10% for land, with the rest payable over 10 years at 12% simple interest, and reimbursement of 25% of the land cost at the purchase rate rather than the cost or circle rate. Another change proposed is inclusion of the manufacture of arms, ammunition and explosives as an investment area for the defence corridor. These areas will be eligible for higher incentives as proposed in the new policy.  UP Government will provide necessary support to industry for interaction with Defence Offset Facilitation Agency to encourage foreign/domestic investors to invest in existing UP Defence and Aerospace Parks and Clusters to meet their offset contractual obligations, says the proposed policy. It proposes to offer 30% reimbursement of purchase price of land and full waiver of stamp duty for such units. 

A new feature is the setting up of a common facilitation centre to provide the support to micro, small and medium enterprises within the corridor. The UP government may even look become an equity partner by providing land plus a soft loan.  Higher incentives are there for new projects and expansion, investments up to Rs 10 crore are proposed to be given a capital subsidy at the rate of 10% for anchor units and 5% for vendor/MSME units. 

For Units in the Bundelkhand an additional capital subsidy of 50% over and above these limits is envisaged. Aircraft maintenance, repair and overhaul could get 50% reimbursement of state goods and services tax. 

Is it enough, what are key questions?

Does the MoD need to tweak this policy of trying to guide manufacturers and also  the investors towards designated and defined ‘nodal points’? It would be much better if it allowed the industry the freedom to choose where they want to set up units in the state. At present the policy defines six earmarked nodal points for setting up of Defence industrial corridor in Uttar Pradesh.  

Do the six suggested nodal points have the technical and  infrastructure besides the investment climate and accessibility.? Is the industry keen to go to these designated clusters or corridors? Is there enough local talent in these places to propel a high-end defence manufacturing unit? Or should the government allow freedom to the Industry to set  up its own base at their own free will ? These are some of key questions dogging the industry as well as the MoD. The existing investment ‘hot-spot’ in UP is Noida or Greater Noida – both places have an established eco-system and that includes educational institutions, social and lifestyle infrastructure for the younger engineers who will  be needed to work at these places besides its proximity to Delhi, the national capital.

Noida in itself is home to several Fortune 500 companies and the upcoming international airport at Jewar on the Delhi-Agra expressway is expected to attract more investors. However, Kanpur, once called the Manchester of India has lost its sheen due to corruption, trade union strikes and lack of law & order. It still has huge campuses of OFB factory and HAL plant. This means, there is enough potential in UP provided conducive environment is created to flourish new factories and manufacturing units there. Similarly, Aligarh was once famous for its locksmiths and related products. Budndelkhand has also vast potential as cheap labour and land can be easily availed. The present Chief Minister Yogi Aditya Nath is working hard to control crimes and attracting investment in the state. 

Also by defining the six nodal points, is the Government giving a dis-incentive to industry that has already got lands and set up infrastructure outside these defined nodal points. 

The major changes that are needed: Rajnath Singh wants matters to ‘speed up’. For this meetings have been conducted with stake holders – industry bodies --   who have made suggestions to catalyse indigenous production to reduce reliance on imports and promote export of these items to other countries.  Some of the suggestions include  ‘a seamless support system’.

The Defence PSUs  like HAL, various OFBs  and  BEL, can be incentivised for sourcing locally within UP. The incentive can be in the form of input subsidies like electricity, lower registration of land and  direct cash benefit which will allow local companies to use their own capital growth or expansion. 

The Government will need help in building skill sets. Defence and Aerospace require extensive training and exposure to the highest global standards. MSMEs cannot make this heavy investment in time and costs.  Stringent quality certification and testing requirements are needed and all such facilities are based in Bangalore or Hyderabad. Companies in the north India have to spend their own money to get testing done 2000 kilometres away. A local set-up will be needed for which funding is needed for laboratories in the private sector  or through educational institutions. 

The cost of import and logistics is high  as raw material is specific too industry. The government may explore establishing import-export warehouses from which MSMEs can procure these materials in “as required basis” and free their working capital. Delivery companies charge a premium for the delivery of these materials to UP as the demand is very limited.  




भारत डिफेंस कवच की नई हिन्दी पत्रिका ‘डिफेंस मॉनिटर’ का ताजा अंक ऊपर दर्शाया गया है। इसके पहले दस पन्ने आप मुफ्त देख सकते हैं। पूरी पत्रिका पढ़ने के लिए कुछ राशि का भुगतान करना होता है। पुराने अंक आप पूरी तरह फ्री पढ़ सकते हैं। पत्रिका के अंकों पर क्लिक करें और देखें। -संपादक

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