For instance, Bangalore generates nearly 65 per cent of the country's aerospace business. As the minister said, if the new scheme for setting up R&D fund for SMEs comes up during the 12th Five Year plan, it will boost SMEs' presence around Bangalore to make it a hub for defence sector.
Meanwhile, Hindustan Aeronautics Limited (HAL), which mainly makes combat aircraft for India's defence sector, has said that it would increase its aircraft component buying from SMEs. HAL mainly outsources its component requirement to SMEs around Bangalore, Hyderabad and Nashik.
CII's report on defence estimates that the Indian defence sector currently comprises over 6,000 SMEs, which supply around 20-25per cent of components and sub-assemblies to the Defence Public Sector Undertakings (DPSUs), ordnance factories, Defence Research and Development Organisation (DRDO) and the armed forces.
The increase in spending on defence procurements will open up significant business opportunities for Indian SMEs for integrating themselves into supply chains of national and international defence majors. The defence sector is thus emerging as a lucrative market for SMEs.
Though the opportunities arising from the defence industry for the Indian SMEs are huge, there are some challenges. SMEs that can be successful are the ones which can innovate, adopt cutting edge technologies, deliver customised solutions, develop and maintain global standard in manufacturing qualities and specifications while maintaining their cost advantages. The challenge, therefore, for the Indian SMEs is to proactively respond to changing customer expectations.
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