UP Defence Corridor: Powering India’s Self-Reliance In Defence Manufacturing

Posted On - 25 July, 2024 • By - Pooja Chatterjee

Introduction

Driven by a growing domestic market and a desire to reduce reliance on imports, India is strategically transforming its defence sector. The UP Defence Industrial Corridor (UP DIC) is a key pillar of this initiative. This ambitious project in Uttar Pradesh aims to not only fulfill India’s military needs through domestic production but also position the state as a global leader in aerospace and defence manufacturing.

Background and Corridor Details

Background

The Indian defence industry is undergoing a significant shift. The nation aspires not only to expand its defence market but also to increase domestic production under the “Make in India” initiative.
India boasts the world’s second-largest military, necessitating substantial spending on defence and aerospace equipment. As of 2014-2018, it was one of the biggest arms importers, accounting for 9.5% of global imports.^[1]
The Union Budget 2020-21 allocated approximately $47.47 billion (excluding defence pensions) to defence, with one-third dedicated to capital expenditure.^[2]

Corridor Details

To lessen reliance on foreign sources, the government established two Defence Industrial Corridors, one in Uttar Pradesh and one in Tamil Nadu, as announced in the 2018-19 Union Budget.^[3]

UP Defence Industrial Corridor (UP DIC)^{^[4]}

This ambitious project aims to decrease India’s reliance on foreign suppliers for aerospace and defence equipment.
It got off to a promising start with over Rs. 3700 crores in investments announced for defence production at an Aligarh meeting in August 2018.
The Uttar Pradesh Expressways Industrial Development Authority (UPEIDA) serves as the nodal agency for project execution, collaborating with various state agencies.
The Corridor spans six nodes: Lucknow, Kanpur, Jhansi, Agra-Aligarh, and Chitrakoot. These nodes are strategically located across Uttar Pradesh’s central, eastern, and western regions, adjoining the Delhi-Kolkata Golden Quadrilateral and supported by a network of expressways.
This initiative aspires to establish Uttar Pradesh as a leading center for advanced defence manufacturing, making it a global player in this sector.

Recent Developments

MoUs and Investments: The project has seen a significant rise in MoUs signed. There were 46 MoUs signed after DefExpo 2020, followed by 16 during Aero India 2021 and another 6 after, bringing the total to 68. These MoUs involve major players like HAL, BEL, BDL, and BrahMos Aerospace.
Key Initiatives^[5]:
- MoUs were signed with the Indian Navy and Air Force to integrate MSMEs and startups directly with the defence forces.
- The Ministry of Defence is establishing defence testing infrastructure at the nodes, while the state government is building a Common Facility Center.
- Centers of Excellence (CoE) are being set up in collaboration with IIT Kanpur and IIT BHU.
- BrahMos Aerospace plans a Next Generation BrahMos Missile Project in Lucknow.
- Bharat Dynamics Limited is setting up a Missile Unit at Jhansi.
Milestones Achieved^[6]:
- IIT Kanpur and IIT BHU received funding to establish CoEs.
- A policy to attract investments in the corridor was published by the UP government.
- Land allotment procedures were streamlined.
- MoUs were signed to facilitate collaboration between the UP government, the Indian Navy, and Indian industry.
Land Acquisition and Infrastructure: The state has identified over 5000 hectares of land for the project in phases and plans to provide essential infrastructure like power, water, and road connectivity.

Key Operations

Over 218 hectares in Kanpur are being developed.
24 companies have expressed interest, with 5 already operational.
Adani Group has begun a ₹1500 crore ammunition manufacturing factory.
Other operational companies include Modern Material and Sciences Private Limited (advanced clothing), Netra Global Private Limited (artillery shells), and Anant Technologies (LEO/GEO satellite equipment).

Significant Milestones^{^[7]}

35,000 AK-203 rifles were delivered to the Indian Army from a joint Indo-Russian venture in Amethi.
An Indo-Russian joint venture is underway in Lucknow to manufacture BrahMos missiles.

Incentives and tax benefits

The Uttar Pradesh Defence and Aerospace Manufacturing and Employment Promotion Policy (Amended) 2019^[8] offers a range of attractive incentives and tax benefits to D&A Units, particularly in the defence corridor.

Land Cost Rebate: Up to 25% of the actual cost of land for units established in UPEIDA land bank.
Fixed Capital Rebate:
- Mega Anchor & Anchor units:
  - 10% of Fixed Capital Investment (FCI) (except land cost) up to Rs. 10 Cr.
  - 15% of FCI (except land cost) up to Rs. 15 Cr in the Bundelkhand Region.
- MSME & Vendor units:
  - 5% of FCI (except land cost) up to Rs. 5 Cr.
  - 7.5% of FCI (except land cost) up to Rs. 7.5 Cr in Bundelkhand Region.
- Applicable in notified Defence Corridor Nodes.
Stamp Duty Exemption: 100% exemption in notified Defence Corridor Nodes.
Subsidy for Common Facility Centre: 25% grant for setting up Common Facility Centres (where GoI provides 75% grant) in notified Defence Corridor Nodes.
Loan Interest Reimbursement:
- Up to 5% for first 5 years on loans for plant & machinery (up to Rs. 50 lakh p.a. per unit).
- Up to 5% for 5 years on loans for infrastructure (up to max Rs. 1 crore).
- Up to 5% for 5 years on loans for setting up Industrial Research (overall ceiling of Rs. 1 Crore).
Electricity Duty Exemption: 100% exemption for 10 years to new units.
SGST Reimbursement:
- 90% to MSMEs for 5 years.
- 60% to large units for 5 years.
- 70% to Mega units for 10 years.
EPF Reimbursement:
- 50% of the employer’s contribution on providing direct employment to 500 or more unskilled workers.
- An additional 10% of the employer’s contribution to direct employment to 200 skilled and unskilled workers.
Tax Incentives: 100% reimbursement of net SGST on all input material (excluding Aviation Turbine Fuel) for imported aircraft used for MRO in UP, for 10 years.
Rebate on Transportation Charges:
- 50% subsidy (up to max. Rs. 2 Cr) for transporting imported equipment/machinery within UP.
- 30% subsidy (up to max. Rs. 1 Cr per year for 5 years) for transporting finished goods out of UP.
Support for Setting Up Facilities:
- 20% reimbursement of project cost for setting up ETP (up to max Rs. 1 Cr).
- 10% subsidy on investments over Rs. 10 Cr for R&D and Testing Centres (max Rs. 10 Cr per investment).
Patent and Trademark Filing:
- 100% reimbursement for domestic patent registration.
- 50% reimbursement for international patent registration (up to a max of Rs. 25 lakh).
- 100% reimbursement for Trademark Registration (up to max Rs. 1 lakh).
Quality Certification Fees: 100% reimbursement for MSMEs (subject to max Rs. 2 lakh).
Building Market Presence: 50% reimbursement of participation cost in international exhibitions/fairs (up to a max of Rs. 5 lakh) for MSMEs.
Capacity Building: Reimbursement of Rs. 10,000 per month per trainee for 6 months (up to a max of 50 trainees per unit per year) for providing on-the-job training.
Technology Transfer Cost Reimbursement: Mega Anchor & Anchor Units:
- 75% for the first 5 vendors.
- 50% for the next 5 vendors (up to Rs. 50 lakh per unit).

Conclusion and Looking Forward

The UP Defence Corridor is a strategically significant project with the potential to transform India’s defence sector. By attracting major investments, fostering innovation through CoEs, and integrating MSMEs, the initiative aims to not only meet domestic needs but also propel India into a global defence manufacturing leader. Early signs are promising, with MoUs signed by key players and initial production underway. However, the project’s long-term success hinges on efficient infrastructure development, continued policy support to ensure ease of doing business, and attracting a skilled workforce. The corridor’s ability to navigate these challenges will be crucial in determining its ultimate impact on India’s self-reliance in defence manufacturing.

^[1] https://upeida.up.gov.in/updic/en/page/-uttar-pradesh-defence-industrial-corridor.

^[2] https://upeida.up.gov.in/updic/en/page/-uttar-pradesh-defence-industrial-corridor.

^[3] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1795541.

^[4] https://upeida.up.gov.in/updic/en/page/-uttar-pradesh-defence-industrial-corridor.

^[5] https://upeida.up.gov.in/updic/en/page/-uttar-pradesh-defence-industrial-corridor.

^[6] https://upeida.up.gov.in/en/article/up-defence-corridor.

^[7] https://economictimes.indiatimes.com/news/defence/up-govt-secures-rs-25000-crore-in-defence-deals-to-propel-industrial-growth/articleshow/111577215.cms?from=mdr.

^[8] https://upeida.up.gov.in/site/writereaddata/siteContent/202001270947342583defence%20policy%20amendment.pdf.

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