Mumbai: Maharashtra government on Saturday announced a draft of defence and aerospace manufacturing policy to attract investment of $5 billion over a period of five years. The highlight of the policy is creation of a fund of Rs1,000 crore to support defence manufacturers, especially the medium and small manufacturing enterprises.

Chief minister Devendra Fadnavis said Maharashtra was the first state to declare such a policy that would be finalised after incorporating suggestions made by the industry and the defence ministry. Defence minister Manohar Parrikar who was present said the fund being created to supplement defence manufacturers “would be a game changer."

Maharashtra’s industry department held a seminar with domestic and global defence manufacturers to fine tune the policy and put in place measures to develop an “ecosystem that helped global as well as domestic defence companies leverage Maharashtra’s strong economic fundamentals, existing defence establishments and knowledge pool" according to Fadnavis. The policy aimed at creating 1 lakh jobs, he added.

Parrikar said one of the factors that would help Maharashtra get investment commitments in defence sector was that “the law and order in Maharashtra was good". “Maharashtra has got a good knowledge base. There is enough talent in places like Pune, Nashik, Aurangabad where defence establishments are located," Parrikar said. Maharashtra has 11 ordnance factories.

The policy offers incentives and flexibility to manufactures. Fadnavis said he would not like to spell out the inventive. Asked about the concerns and issues the defence manufacturers had raised, the chief minister said the industry expected a flexible policy framework and the status of an essential services industry given the safety and security aspects exclusive to the industry. The industry also wants ease of doing business which the policy supports, he said.

He said the fund was being created to provide small and medium defence manufacturers who “may not have the same financial capacities as the giant companies". “Defence is a special industry where manufacturers do not get much fiscal space as compared to their counterparts in other sectors. Getting long-term finance is difficult for defence manufacturers as compared to others. So we are creating this fund so that it helps these manufacturers get the critical fiscal space. After all it is the MSMEs in defence sector who make the ecosystem. They can leverage this fund to enter the sector," Fadnavis said. Maharashtra government’s Maharashtra Industrial Development Corporation is talking to SBI Capital and IDBI to set up this fund, he said.

Parrikar said the fund addressed a key problem in the defence manufacturing sector, that of initial availability of small finance. “In the defence sector, since the government is the only buyer, suppliers and manufacturers have to fulfil certain conditions before payment can be made out to them. In many cases especially involving small manufacturers, problem comes if they have to deposit upfront even a small amount with the government. The manufacturer feels his money will get stuck. This fund would be useful in solving such payment chain problems," Parrikar said.

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