SREI Infrastructure Finance has mulled floating defence offset funds to provide equity to MSMEs manufacturing defence equipment. Hemant Kanoria, SREI chairman and managing director, said the proposal was under the government’s consideration and it intended to tap a part of defence spending for structured promotion of defence MSMEs.
Original Equipment Manufacturers of defence products, both domestic and foreign, could provide capital to float such funds and companies like SREI could be given the responsibility to manage such funds. Such funds could give returns to investors, while providing finance to defence MSMEs, which often fail to supply orders for want of capital.
Mandatory offset for defence procurement requires 30% of the total equipment needed in making a defence product to be sourced from the domestic market. Ajay Kumar, defence production secretary, said at the Bharat Chamber of Commerce-orgainsed defence manufacturing summit that India is poised to place orders worth Rs 80,000 crore this fiscal for procuring defence equipment. Of this, orders worth Rs 24,000 crore has to be placed within the country, which Kanoria said, could be tapped to fund MSMEs in a structured manner.
With over 6,000 MSMEs across the country working in the defence sector and manufacturing 10,000 products, the government wants increased participation of MSMEs in defence manufacturing so that considerable benefits of the consolidated defence five-year plan, from 2017-2022, which has pegged at spending Rs 26.84 lakh crore, remain within the country. The cumulative value of India’s defence market for the next five years would be Rs 1,80,000 crore.
Licensing has been liberalised for the PPP engagement in defence production and Indian bids, 20% less in prices from that of imported products assuring same quality as that of the imported product, would get preference. The government has also entertained suo-moto proposals from MSMEs and has received 50 such proposals in the last six months of which the defence has accepted one proposal so far, Kumar said.
Source: Financial Express