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Small is the new big</b>
Sandeep Unnithan
February 14, 2008Â
Every day, millions of soldiers across the world, from Turkey to the United States, don Kevlar helmets. One in every 10 of these helmets is rolled off the production line of M Kumar Udyog (MKU), a small Kanpur-based company that cranks out a staggering 25,000 ballistic helmetsâenough to equip over two army divisionsâin a month.
The helmets cost $200 (Rs 8,000) each and are exported to the armies of over 40 countries, including the police and homeland security forces of the US.
Neeraj Gupta, who heads the companyâs foreign sales department, recalls the time, five years ago, when foreign firms cited lower costs in China to counter his price. Recently, however, Gupta bagged a $15-million (Rs 60 crore) order to armour Turkish naval frigates despite his quote being 40 per cent higher than his nearest competitorâs.
âWhen I recently asked a foreign defence company if the Chinese were not competing any more, they said they were looking for armoured protection, not soft toys,â he explains.
Today MKU is a buzzword in the rarefied world of armour protection, be it equipping the soldiers of Singapore or armouring German-built warships in Turkey. The firm, which bought its helmet technology from a US company a few years ago for Rs 50 lakh, plans to buy German and American firms to be able to compete better in the international market.
MKU is one of the biggest success stories in the nascent, but fastgrowing, private sector defence industry. Seven years after the doors were thrown open to private participants, they now produce world-class helmets, electronic processors, nuclear fallout shelters, simulators and unmanned aerial vehicles.
These small and medium enterprises (SMEs)âwith investments in equipment between Rs 10 lakh and Rs 5 croreâare the new defence providers, taking baby steps towards the great goal of selfsufficiency in the defence sector.
There are over 5,000 companies in India supplying 20-25 per cent of the components to state-owned defence firms. According to the Pune-based Defence Electronics Manufacturers Association (DEMA), an SME grouping, there are about 150 major SMEs, located around Pune, Bangalore and Hyderabad, with a combined annual turnover of Rs 1,500 crore.
Most were sub-contractors to defence PSUs, shipyards and the Ordnance Factory Board. They will participate in the four day Defence Expoâstarting February 16 in Delhiâwhich is Indiaâs largest exhibition of land and naval systems.
âNo industrial sector can excel if its SMEs are not strong. The Indian automotive sector would not have been what it is, but for its small and medium players,â says Director-General of Confederation of Indian Industry Lt- General (retired) S.S. Mehta.
Another example of a small company making it big in the sector is Rosoboronservice. When the Indian Navy needs spares for its Russian-built warships or equipment, it usually dials this joint-venture firm set up by Commander (retired) V.G. Jayaprakasan 13 years agoâ when sourcing parts and equipment from Russia was becoming difficultâ with the Russian government, which owns a 75 per cent stake in it.
The naval engineer who also launched Krasny Marine to service warships, says, âBeing self-reliant in servicing sensitive defence equipment is as important as producing the equipment.â
Today, Krasny Marine refits Coast Guard and naval vessels, while Rosoboronservice is the largest provider of defence spares, expertise and infrastructure in the country.
This year, it will begin servicing Russian equipment with the army and the Indian Air Force (IAF) in a deal that could catapult its turnover five times to over Rs 500 crore.
SMEs are also indispensable for R&D. Dass Hitachi, a medium-scale engineering company located just off Delhiâs Grand Trunk Road, is engaged in developmental activities in association with the Defence Research & Development Organisation.
It specialises in nuclear, biological and chemical (NBC) protection and is the only indigenously approved producer of NBC ventilation systems. It makes underground, self-contained, NBC-protected, portable sheltersâdesigned to help Indian forces withstand a nuclear attack in a ânear-missâ situationâin large numbers.
The shelters include a decontamination module and a utility module with living accommodation and facilities sustainable for 96 hours. Executive Director Pradeep Dass is reluctant to divulge the capacity of the weapon system it is designed to withstand, but he indicates that the shelter has been successfully evaluated for a blast of requisite yield under actual field conditions.
At an estimated $45 billion (Rs 1.8 lakh crore), the Indian defence market will be one of the worldâs most attractive ones in the next five years. A study by Ernst and Young and ASSOCHAM says the market for private defence firms will grow by 30 per cent in two yearsâ time.
Soon India will also have the defence sectorâs first equivalents of the Tirupur hosiery and the Gurgaon auto component clusters. DEMA is scouting for at least 50 acres in Pune, where 50 hi-tech defence equipment manufacturers can be based.
âThe business itself is driving the growth of SMEs, most of which are nimble-footed,â says Pradeep Kumar, secretary, defence production, Ministry of Defence (MoD).
The SME environment has been further conditioned by MoDâs procurement policy, which makes what are called direct offsets mandatory. This means that foreign firms have to plough back 30 per cent of the value of all contracts worth over Rs 300 crore into the Indian market by sourcing materials and transferring technology to the domestic industry.
Thus, at least Rs 54,000 crore will flow as offsets into the defence industry in the form of high technology from foreign defence majors. âIt is an exciting opportunity for the Indian industry to raise the technology threshold, since offsets donât differentiate between the private and public sectors,â says Mehta.
Larsen and Toubro and Hyderabad-based Astra Defence Software became the first beneficiaries of defence offsets in 2006, when Israeli firm Elta chose to invest Rs 250 crore to source components from them after signing a deal to supply radars worth Rs 833 crore to IAF.
Six foreign firms, including Lockheed Martin and Boeing, which are competing for a $10-billion (Rs 40,000-crore) tender to buy 126 multi-role warplanes for IAF, are wooing SMEs to disburse about $5 billion (Rs 20 crore) in offsets.
Indian firms, on the other hand, say they donât lack technology or manpower, but face hurdles in funding and infrastructure. Financial institutions are still reluctant to offer credit to SMEs.
âIt will take us at least five more years to start thinking of absorbing offsets,â says D.S. Kamlapurkar, president, DEMA. The Government is yet to move on key promises like the Raksha Udyog Ratnas, where the private sector would be given parity with PSUs.
It is also sitting on a proposal cleared by former defence minister Pranab Mukherjee to pump Rs 100 crore into the private sector for R&D. It is up to the Government to nurture defence SMEs and usher in an era of self-sufficiency.<!--QuoteEnd--><!--QuoteEEnd-->
