$1.5 Bn Central Funding Proposal For Defence Industrial Corridors Turned Down

Vishal Thapar Feb 08, 2022

A Rs 11,000 Crore ($1.5 Billion) funding proposal for kickstarting the two Defence Industrial Corridors in Uttar Pradesh and Tamil Nadu has been shot down, it is reliably learnt.

“The proposal was to fund technological hubs in each of the 11 nodes in the UP and Tamil Nadu Defence Industrial Corridors through a Central budgetary grant. It involved an allocation of Rs 1,000 Crore ($133.3 Million) per hub for this purpose. This proposal was placed before the Empowered Financial Committee (EFC) for approval. But it’s been turned down and the stimulus package for these corridors is back to the drawing board,” a source privy to the development disclosed to this reporter.

The Ministry of Defence proposal was dropped after it failed to impress Prime Minister Narendra Modi, it is learnt. External consultants had been engaged to help prepare the proposal, which envisaged creation an end-to-end ecosystem for Aerospace and Defence sector development covering design, engineering and manufacturing in each of the nodes or clusters.

Six nodes have been notified for UP and five for Tamil Nadu. The Agra, Aligarh, Jhansi, Kanpur, Lucknow and Chitrakoot nodes make up the UP Corridor which is being driven by the UP Expressways Industrial Development Authority (UPEIDA). The Tamil Nadu corridor, driven by the Tamil Nadu Industrial Development Corporation (TNIDC), comprises the Chennai, Coimbatore, Salem, Hosur and Tiruchirapalli nodes.

The technical hubs were proposed to be the heart of the respective nodes. “These were meant to serve as technology incubation centres through a cluster approach which could promote a specific line of technology in each of the nodes. These hubs were also meant to provide specialized common facilities like testing, validation and certification centres and industrial infrastructure to bring value to investments in the Corridors,” the source explained.

The rejection of the proposal on funding the nodes has forced a re-think on infrastructural stimulus to the Corridors.

Incidentally, in her Budget speech on February 1, Finance Minister Nirmala Sitharaman announced that an independent nodal umbrella body will be set up for meeting wide ranging testing and certification requirements. This body will not be exclusive to the Corridors.

The Defence Industrial Corridors were launched in 2018-19 in UP as incentivized zones to promote the Make in India agenda in Defence and Aersopace. The aim was to attract investment of at least Rs 10,000 Crore in each Corridor.

UP announced the ‘Uttar Pradesh Defence & Aerospace Unit and Employment Promotion Policy’ in 2018 while Tamil Nadu promulgated the ‘Tamil Nadu Aerospace and Defence Industrial Policy’ in 2019 detailing incentives for the Corridors.

Tamil Nadu also engaged IIT Madras and the Defence Research and Development Organisation as knowledge partners. IIT Madras took up a feasibility study for developing Ulunderpet airstrip as an Aviation Technology Development Complex providing a flying academy, flight testing, UAV testing and aeromodelling facilities.

Even under the Offsets policy, a higher multiplier of 2.0x level has been assigned for investment in Defence Corridors.

According to a recent statement in Parliament, UP has signed 62 MoUs with an investment potential of Rs 8,638 Crore while Tamil Nadu claims potential investment of Rs 11,153 crore by 40 Industries.

Prime Minister Modi inaugurated the Jhansi node in UP in November 2021 and Defence Minister Rajnath Singh flagged off the first operational private sector facility in the UP Corridor, also in November. The latter facility specializing in metallurgy is owned by PTC Industry and is manufacturing parts for aircraft, UAVs, guns and submarines.

But despite the policy push and political backing, it appears that the ideation for kickstarting the project is back on the drawing board.