The UP-Defense Corridor will unlock a windfall of Opportunities in the Indian Defense & Aerospace Sector

The largest state of India, UP is set to become a major manufacturing destination in the country. Political stability, proximity to the national capital region, sustained investments towards infrastructure, lowering of crime rates, and a large concentration of SMBs make UP a favorable destination to run and start a manufacturing business.

Amongst various sectors, the state is also centerstage to India’s ambition of becoming a global defense powerhouse. India already is home to one of the largest militaries in the world and holds a massive defense budget, after China and USA. In FY 24, the total defense budget in India amounted to USD 81.24 billion, climbing up from the budget in FY 23, when it was pegged at USD 77 billion.  It is also among the biggest defense importers across the globe. As per the SIPRI report, India accounts for 11% of the total arms import, surpassing KSA (9.6%) and Qatar (6.4%).

However, GOI is committed to making India self-reliant in defense production and systematically reducing reliance on foreign imports. India is also eyeing a lucrative share of the global defense exports market. Defense export from India reached USD 1.7 billion in FY 22, growing at a CAGR of over 49%.

Hundreds of items have been put on the negative list, while a separate budget has been identified for locally manufactured ammunition and defense equipment. The FDI limit has also risen to 74% in the defense sector from 49% earlier.

As a part of India’s plan to become a defense destination, the country has announced a couple of defense corridors, one in the state of UP as well as Tamil Nadu.

The UP-defense corridor is six nodes extensive defense cluster, which is going full swing. The corridor comprises Agra, Aligarh, Kanpur, Lucknow, Jhansi, and Chitrakoot, thereby covering west and central UP alongside the Bundelkhand region. Already land has been mapped and work is going on to develop the common facilities & infrastructure. The government will provide/ assist with power & water supplies, plug-in-play manufacturing units, housing, and infrastructure, etc. Likewise, it will also support creating R&D capabilities, testing ranges, marketing & promotion, etc.

The UP-defense corridor will focus on defense production, arms & ammunition, explosives, safety gears, sensors & radars, metal & alloys, etc.

Benefits of Setting up a Manufacturing Base in UP 

There are multiple advantages to setting up the Defense manufacturing business in the UP-defense corridor, as underlined below

• UP has an extensive supply of qualified manpower and a semi-skilled labor force. In the state, there are close to – 53 universities, 4500+ colleges, and 168 Polytechnique institutes.
• There already is a well-established ecosystem with nine Ordinance factories and 3 HAL units.
• The industrial corridor will be backed by a host of expressways and highways such as Delhi Jhansi Expressway, Bundelkhand Expressway, Purvanchal Expressway, Yamuna Expressway, and Lucknow- Agra Expressway.
• In 2024, the Jewar airport will commence operations. Once fully operational, Jewar will be the largest airport in India, located in the vicinity of the UP-defense corridor.
• The defense corridor is also linked to the WDFC and EDFC, which will offer manufacturers and businesses easy access to mass-freight systems.
• There are premier educational institutes in the vicinity such as IITs (Kanpur and Varanasi) and IIM (Lucknow)
• The state of UP is one of the largest economies in India. It also has a vast SMB base, comprising 14% of the MSMEs in India. This will help in developing a large ancillary base, required for any industry to flourish.

Already in the past 2 years, investments have picked up in the corridor. Recently, Bangalore-based aerospace enterprise Genser has announced to invest INR 3000 crores (USD 420 million) to develop a full-functional airplane manufacturing set-up. The newly built unit will be located at Kanpur and develop 1200 units over the next 20 years. While 50% of the production will be supplied to the Indian defense forces, the remaining will be exported.

India’s leading business conglomerate, Adani Groups under the flagship of Adani Defense is investing INR 1500 crores (USD 210 million) to develop a defense manufacturing unit. India and Russia will be working in a JV to manufacture Brahmos missiles to be used by the Indian defense establishments.

Incentives for Starting the Business in the UP-Defense Corridor

There are numerous incentives provided by the government to enterprises planning to start their operations at the UP-defense corridor.

• Plug & play factory spaces augmented with robust infrastructure backbone.
• 25% discount on the land prices.
• 100% stamp duty waiver.
• Easy installment schemes are provided to procure land. One can pay a 30% downpayment and the remaining can be paid over a period of up to 30 years.
• 75% reimbursement can be availed for technology transfer.
• For defense testing, private enterprises can use the facilities by Ordinance factories at a 50% discount rate.
• On-the-job training will be reimbursed fully.

Tailor Made Consulting and Research services 

The UP-defense corridor is set to become a thriving ground for OEMs, and manufacturers, alongside start-ups, ancillary businesses, and other related mid-scale enterprises. As discussed, already international and indigenous defense & aerospace enterprises, PSUs, and SMBs are coming to the region. In the times more enterprises are expected to join the bandwagon, aligned with the GOI’s objective to transform India into a global defense powerhouse.

However, starting a business set-up in India also requires extensive data, information, and actionable insights. In an absence of powerful access to data, an enterprise might make a sub optimal business decision.

Hence, it is advisable to seek assistance from a seasoned advisor and consultancy that can help new businesses with the required data and on-ground support. A consultancy can help with the following set of services underlined below

• Tailor-made data and insights on the market, competition, industry growth, value chain, supply chain, etc.
• Assistance in scouting industrial plots, offices, warehouses, etc.
• Assistance in finding suitable vendors and suppliers.
• Assistance in company formation and other legal supports.
• Prepare feasibility reports, detailed project reports, etc. for new businesses.
• Custom market studies as per the requirements of the clients.

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