Mega parks and manufacturing clusters for small industries and sops for defence corridors in Uttar Pradesh and Tamil Nadu may be some of the initiatives to be announced in the forthcoming budget.
Top officials said the government was keen to offer financial and tax incentives to promote the proposed mega parks and manufacturing clusters for the micro, small and medium-scale industry. Incentives could include an interest subsidy for MSME loans up to a certain threshold, easier credit terms and higher allocation of directed credit to the sector.
“The concept is to give various facilities needed to small businesses in one area. This will not be like the SEZ scheme but rather will work on existing clusters such as the Gurgaon cluster for auto parts or newly minted clusters which state governments want to set. Funds will be poured in here to give various common facilities, which could include training, marketing, quality control and even research and development, besides the usual facilities such as security, better connectivity and infrastructure,” said officials.
Two states — Tamil Nadu and Uttar Pradesh — have announced defence manufacturing corridors but these are yet to take off. Much of India’s defence manufacturing is in the public sector with a large part of it concentrated in eastern India.
Tax sops and more spending on these corridors are expected to be announced, said officials. Uttar Pradesh is going to be a key battleground for the ruling coalition in the forthcoming general elections, while small traders and businesses have been identified as a key segment in the electorate which are unhappy with the Narendra Modi-government.
Attempts by the government to create a vibrant private arms manufacturing sector are yet to take off, with many difficulties in the offset clauses of government orders and in the transfer of technology by foreign manufacturers to Indian partners.
The recent controversy over India’s Rafale jet purchase deal where there were allegations that the deal favoured Anil Ambani’s ADAG group with offset orders, besides being overpriced several times compared to prices earlier decided during the Congress regime, has also served to queer the pitch for such projects.
Sources said the government had advised the Russian Kalashnikov rifle manufacturers to partner the Indian Ordinance Factory Board in a venture to make a fully indigenous version of its popular Kalashnikov-103 assault rifles, instead of a tie-up with the Adani group, being contemplated by the Russians.
After a series of meetings, Russia and India firmed up the deal which will produce 6.5 lakh pieces of the advance rifle for Indian infantry regiments, the navy, air force and central police forces as well as exports.
A variant of the AK-47 developed by the Ichhapur rifle factory a few years back has been rejected by the army as unsuitable because of a number of defects.
According to sources, manufacturing could begin by the end of this financial year once the deal id signed with the Russians.
Officials said, “We wanted to get a deal finalised fast as the army needed a new rifle urgently and we did not want to get into a fresh controversy ahead of an election which could stop the deal from fructifying.”
Though the Rafale deal has not been stalled, it has become a political hot potato. Officials said initial orders for the rifles have been placed by the army.
Other divisions such as the air force, navy as well as the central police forces, which use the same type of rifle, will then place their orders.
Large orders
The two defence manufacturing corridors are expected to attract private Indian companies which may set up joint ventures with foreign arms makers to take advantage of the Rs 100,000-crore orders that the government has in its pipeline.
Officials say that currently the Indian private sector is capable of handling less than 10 per cent of this order, but India wants to increase this slice to about 25 per cent.
