UP Industrial Defence Corridor (UPIDCO) – Challenges and Way Ahead

By Lt Gen Dushyant Singh, PVSM, AVSM (Retd)

Source UPEIDA Website

Capability Building & Atma Nirbhar Bharat

• Changing Face of Warfare and Increasing Demand for Defence Equipment. Future wars are likely to be fought in domains hitherto unforeseen. Days of tanks, guns kinetics and firepower may still remain in vogue but war fighting will shift decisively into domains of cyber space, aerospace and information space driven by Artificial intelligence (AI,) Big Data Analytics, and Internet of Things (IoTs). Not that era of conventional weapon platforms is passé; they will remain relevant albeit at lower priority of use. Since manufacturing units of conventional weapon platforms are well established in various parts of the country, proposed defence corridors are unlikely to attract production of main stream manufacturers of defence systems. Therefore, it will be advisable to set up manufacturing units of force – multiplier and niche technology based defence weapon and equipment in the proposed corridors. They must shape up as hubs of state of the art defence technologies focusing on wars of the future. This will inevitably propel India into a global leadership of defence technologies. The statement appears like a dream but unless we start dreaming, we can’t innovate and produce. Atma Nirbhar Bharat will key in perfectly if the Defence Industry Corridor projects focus on technologies of future warfare.

• Measures to Promote Indigenization. The government is tackling indigenization of defence production on a fast track despite the fallout of COVID 19. India’s goal of self-reliance in defence, generation of direct/indirect employment opportunities and growth of private domestic manufacturers, Micro Small and Medium Enterprises (MSMEs) and Start-ups would be very well served with the suggested approach of Defence Corridor Program. The Defence Ministry’s recent initiative of promulgating a negative list of 101 defence items that cannot be procured through import route will further boost the growth of the Industrial Corridor. The negative list has been well formulated as it has in the interim given time for the defence forces to continue with import of some crucial technologies required for capability development. At the same time inclusion of some state of the art technologies to be manufactured indigenously will challenge the indigenous players to produce them on fast track by laying down a time limit before which the indigenous production of the concerned defence items must begin. Within this period, country’s manufacturing establishments and units including PSUs will have to come up with indigenous options. Addition of the Buy – Indigenize, Design, Develop, and Manufacture (Buy-IDDM) clause is likely to expedite the Make in India program of the country. Further, since reorganization of the MoD and appointment of Chief of Defence Staff (CDS), MoD has already sanctioned indigenous procurement of major weapons amounting to Rs 5100 crore earlier this year and Rs. 2290 crore announced by Shri. Rajnath Singh on 28 September 20. In fact, on 27 August 2020 the RM had announced the procurement of defence products worth Rs. 1.40 lakh crores domestically. This is a welcome development; it should give hope to small, medium, and big enterprises to invest in the Defence Corridors on a war footing since the government is creating the necessary demand pull on the Indian Defence Industry besides spurring innovation.

• Defence Acquisition Programme 2020. Giving further impetus to the indigenization push, the RM released the new DAP 2020. The salient highlights are firstly, the DAP 2020 has aligned itself with Atmanirbharta and facilitates indigenization of defence industry through Make 2 initiative. Secondly, it has a vision to transform India into a global defence manufacturing hub. Thirdly, it includes provisions to encourage FDI to establish manufacturing hubs both for import substitution and exports by allowing 74% FDI in defence production industry while also protecting the interests of Indian domestic industry. Fourthly, it contains a new chapter covering enabling provision for Services to procure essential items through Capital Budget under a simplified procedure in a time-bound manner. The concerted drive by the Central and the State Governments will definitely give the project the desired impetus.

UPDICO

• One of the primary vehicles for indigenization of defence industry is the establishment of the north and south corridors. UP Government has nominated UP Expressways Industrial Development Authority (UPEIDA) as the nodal agency to steer the activities of UPDICO. The nodes of UPDICO are Agra, Aligarh, Jhansi, Chitrakoot, Kanpur and Lucknow.(See map) They are well integrated with the Golden Quadrilateral and other expressways. This will facilitate the overall manufacturing process since all the nodes are in a turn round time of 12 hours from Delhi thus speeding up the supply chain management. State Government has also announced that most land allocation in various nodes is well on course..
• Milestones Achieved. As per UPDICO web site, the UP government has nominated IIT Kanpur and BHU as the Centres of Excellence (CoE) of Defence Corridor. It has sanctioned Rs. 50 crore and Rs. 69 Crore respectively to the two institutions against this an amount of Rs. 2 Crore each has already been released to the two institutions. A commitment to invest Rs. 3700 crore was announced by Defense PSUs in 2018 and 32 MoUs have been signed by some private Industries to set up units in the UPDICO in February 2020. UP Government has also decided to setup Common Facility Centre (CFC), CsoE and skill development centre (SDC) to facilitate the incorporation of best practices, research and development in the manufacturing process. The SDC should target the specific needs of the skills required for Aerospace, Weapon Systems, Ammunition & Explosives, and State of the Art technologies related to electronics and cyber space required by the Industry are likely to come up in the various nodes. The impact of the Defence Corridor initiative would be felt on manufacturing as well as employment generation. The proposal to establish a Defence Park as a joint venture of UPEIDA and IIT, Kanpur on 30 Acre land proposed in Shivli near IIT Kanpur is in final stages of approval by the UP Government. Similarly, the setting up of CFC at Lucknow is being initiated, to carryout Prototyping, Designing, Skilling and Incubation etc. This will further boost and encourage MSMEs and SMEs to set up units in the corridor. Given the proximity of Noida, Jhansi, Agra, Lucknow, Aligarh and Kanpur with Delhi the nodes should also attract international players to invest especially post the likely exodus of manufacturing units out of China after COVID 19. The land allotment has also commenced. The available land bank details of the various nodes is shown in the figure below.

Source UPEIDA Website

Challenges

• The Problem Areas. Defence Corridor Project in UP appeared to have shown enough promise and progress especially after signing of the 32 MsoU and timely allocation of land in various nodes. But COVID 19 and few systemic problems have impeded the progress? Make in India proposal of the GoI has undergone a number of iterations but the progress on ground has not been very encouraging. Despite revising the policies, increasing FDI beyond 51% (now it stands at 74%) foreign players are not enthusiastic. This could be attributed to many factors such as strangle hold of Defence PSUs, OFB and DRDO which do not provide level playing field for Private Players. Despite the sincerity of private players such as L&T, Tatas, Mahindra, Reliance, Zen Technologies etc., the influence of Defence PSUs, DRDO and OFBs comes in the way of private players. Similarly, lack of hand holding by the Government of MSMEs and SMEs during indigenous development in terms of funding, facilitating foreign partnerships in research, technology transfers development and assured orders or assistance in exports of defence systems acts as a dampener in domestic production. Another area of concern has been skill development for which academic – industry (public & private sector) partnership is essential. The complex nature of defence manufacturing, design, and development especially in the aerospace sector requires a focused program of skill development. It is very encouraging that UP Government is setting up the SDC, Defence Park, and CFC. Development of CFC should target creation of testing facility for various defence systems within the UPDICO. This will help the MSME and SMEs to validate their products within the corridor. It is a matter of pride for UP that it has improved its ranking within the country in “Ease of Doing Business” and stands second in the ranking. Only Andhra Pradesh is ahead of UP which has overtaken leading states like Gujarat, Maharashtra, and Tamil Nadu etc. But what needs to be watched carefully is how well it has reoriented its policy towards facilitating defence manufacturing units only then will UPDICO stand to benefit. Towards this end, publishing of Defence and Aerospace Unit and Employment Promotion Policy (First Amendment) 2019 by the UP Government to attract investments may provide the necessary fillip. 
•   Likely Sectors of Investment. If 32 MoU are any indicators the industry  has shown interest in a number of sectors which are tabulated below :

Sectors	Firms / Organisations	Locations
Aviation including Maintenance Repair and Overhaul (MRO), Engine Air Frames, Simulators, Manufacturing of components. Aviation Testing Facility	Titan Aviation & Aerospace India Ltd LLP ( Anchor Research Lab) Texmaco Defence Systems Pvt Ltd Nitya Creation India	Jhansi, Aligarh
Avionics and Radars, EW	MSK Business Solutions India Pvt Ltd P2 Logitech	Noida Agra Kanpur
UAV & Drones Related Technologies	BDL – IIT Kanpur Allen and Alvan Pvt Ltd	Lucknow – Agra Aligarh
Propulsion, gearboxes, auxiliary power gas. Turbines Generators, steam                     turbines	Triveni Engineering & Industrial ltd. Spicejet Technic Pvt Ltd. PBM Insulations Pvt Ltd	Aligarh Noida
Software related Industries	Vitor Cloud Technology	Location not yet declared but most likely NCR/Noida
Weapon Systems and related products	Syndicate Innovations International Ltd OFB – AK 103 Project Osho Corp Global Pvt Ltd Sri Hans Energy Systems	Not yet declared Lucknow     Aligarh     Kanpur
Ammunition Cartridges Explosives	STUMMPS Schuele and SOMMPPA Ltd	Jhansi / Chitrakoot

Source UPEIDA Website

• Additional Observation on the Status of UPDICO. The initial progress has been very encouraging. However, since the MsoU are just promissory in nature and progress needs to be closely monitored by a dedicated team for each industrial sector. Also, the leading industrial houses other than Tata’s are missing from the list. Similarly, adequate number of Foreign OEMs are also not there in the MoU. This aspect needs to be followed up by the UP Government through a high level committee working in close coordination with the Central Government to attract more players. The opportunity of industries wishing to relocate from China due to its confrontationist attitude on various international matters must be harnessed expeditiously. Another area which is conspicuous by its absence is the niche sectors of AI, robotics, software, and hardware development industries. This is the future and it needs to be given the push it deserves if UPDICO has to emerge as major hub of defence production. Private and Public Sector Undertakings have to be motivated and encouraged with additional sops to come and establish green field manufacturing, designing and development units.   

Future of UPDICO

• UPDICO has taken off well. Despite COVID 19 setback, the UP Government is doing a commendable job to keep the project on track. However, it needs to be now given a qualitative push. Inviting the big players, inducting niche technology sectors such as AI, Big Data Analytics, Robotics, Cyber, and Electronic Warfare technologies. Given the interest shown by the state leadership in UPDICO action in these areas may already be taking place with the other stake holders the MoD, Industry, and Financial institutions. The State Government in consultation with the MoD must also appoint a dedicated and expanded project management team to oversee the progress of various projects in UPDICO. Earlier the team comes into existence better it would be for the Industrial Corridor’s growth and development. It must look at the corridor from an all-encompassing perspective of incorporating the needs of Security, Defence, Aerospace and Disaster Management. It must also put in place SOPs to cut out red tape and corrupt practices. As and when the UPDICO starts emerging as a major manufacturing hub, the NDMA, UPSDMC and MHA must establish their response mechanism to deal with any natural and manmade disasters including cyber and electronic space disasters.
• R&D is an important constituent of Atmanirbharta. Knowledge partners of UPDICO like IIT Kanpur, BHU have to collaborate with DRDO, HAL, BDL, BEL, ISRO, DAE and R&D wings of private industries to feed the manufacturing units with state of the art technologies. The collaboration of Academia, Industry, and Research Organisations is an indispensable need for the UPDICO to progress. Presence of HCL and TCS in the state need to be exploited for this purpose.
• Development of a nationwide industrial manufacturing ecosystem with seamless connectivity with UPDICO must be ensured for sustaining the industries that come up in the UPDICO. The business model must include import and export facilitation of critical technologies for manufacturing of defence components, equipment, and systems.
• Assured market needs to be ensured for these industries to sustain. A mandatory provision to procure items and products from the hub by the users would go a long way in sustaining the industries that come up in the hub.
• A secondary fallout of the UPDICO would be employment generation. However, for this, the skill development centres and industry academia cooperation is necessary. Tapping the potential of ex- servicemen who have worked in the field of aviation, weapon systems and electronics will greatly assist this problem in the initial stages.
• The aim of the UPDICO must however remain to serve the Armed Forces with high quality and relatively cheaper option than importing exorbitantly costly equipment. At the same time, it must aim to increase the percentage of indigenous components in their manufacturing to be truly recognized as indigenous entities capable of serving the National Goal of Atma Nirbhar Bharat in Defence Production. To sum it up in the long-run the initiative looks to be promising and will assist India in becoming one of the leading indigenous producers of niche technology driven defence weapons and equipment systems.