Defence Corridor: Uttar Pradesh govt expected to announce incentives to attract A&D companies

To encourage private enterprises to establish industries without specifying areas, the UPDC should allow them to set their bases not only on earmarked government-owned land but should also cover entire cities in the identified areas.

 

The Uttar Pradesh (UP) state government is expected to make modifications in its Defence policy for the upcoming ‘Defence Industrial Corridor’ in an effort to incentivise arms, ammunition and explosives manufacturing units to set up their bases there.

Given the North Indian state’s potential as a hub for Aerospace & Defence (A&D) manufacturing and industry, the inauguration of the Defence Industrial Corridor earlier this year by Prime Minister Narendra Modi will help in its economic development.

 

The UP-Defence Corridor (UPDC) which is going to come upon over 5,000 hectares around Lucknow, Kanpur, Agra, Aligarh, Jhansi and Chitrakoot, has opened up opportunities for the state government to kick-start the creation of a world-class manufacturing hub for the Indian and global A&D industry.

The project which is expected to attract Rs 20,000 crore has so far received investments worth Rs 4,000 crore. Senior officials have confirmed that plans are afoot to announce incentives which will allow for industries to thrive in the state and create thousands of jobs, and also attract not only investment but also human capital.

To encourage private enterprises to establish industries without specifying areas, the UPDC should allow them to set their bases not only on earmarked government-owned land but should also cover entire cities in the identified areas.

In the past, due to the fine print in policies made it difficult for companies to access the incentives that encouraged them to establish set-ups in the state, a policy move borrowed from states such as Gujarat and Maharashtra. However, these states had consolidated their industrial development to a great degree prior to the introduction of these policies and therefore UP must be innovative in its defence policies in order to attract companies from these states.

According to a senior official who wished to remain anonymous, facilitation of offsets is very vague; therefore direct financial incentives from the state government would be attractive.

The state has multiple A&D companies such as Hindustan Aeronautics Ltd. (HAL), many Ordinance factories, BEL, etc. that have an eco-system of vendors and suppliers across the country.

These companies should be incentivised to source their goods and materials locally. These incentives can occur in the form of input subsidies (electricity or land registration) along with direct cash benefit which can be used by these companies for their own capital growth or expansion.

“This will help complete supply chain growth from the original equipment manufacturer (OEM) to multi-tiered suppliers as the OEM can pass on the cost-benefit to potential customers, thereby making them more competitive while also helping to develop an alternate supply chain of MSME vendors in the state,” the official added.

Also, another incentive could be provided to offset multipliers by getting sourcing done by global companies (OEMs and their Tier suppliers) from the UPDC. And this could be done through the Ministry of Defence (MoD) to provide for the offset multiplier incentive in their regulatory guidelines document (Defence Procurement Procedure – DPP) in their next revision.

The state is likely to invest in the training costs of UP domiciled individuals with a view to developing their skillsets for work within the state’s aerospace industry.