New defence procurement procedure to spur R&D at MSMEs

The focus on procurement of indigenously designed, developed and manufactured products ill encourage research and development (R&D) in the sector and boost the growth potential of these units

Micro, small and medium enterprises (MSMEs) catering to the defence sector stand to benefit from the revised Defence Procurement Procedure (DPP) put out by the government. CRISIL believes the focus on procurement of indigenously designed, developed and manufactured products and reservation for MSMEs in the ‘Make’ category, specifically for products having development costs of less than Rs 3 crore, will encourage research and development (R&D) in the sector and boost the growth potential of these units.

CRISIL’s analysis of over 200 MSMEs catering to the defence sector shows that their average sales increased from Rs 10.53 crore in fiscal 2010 to Rs 30.14 crore in fiscal 2014, marking a compound annual growth rate (CAGR) of 30 per cent. Investment in fixed assets also grew over this period, from Rs 2.13 crore to Rs 5.16 crore, translating into a CAGR of 25 per cent.

CRISIL believes such initiatives and policy interventions of the government in this sector will help make MSMEs globally competitive.
 

Note: This fortnightly tracker presents CRISIL's insights on MSMEs, a key element of the Indian economy. The analysis is based on the latest audited financial statements (i.e. 2013-14) of the enterprises, most of which finalise their audited financials for the previous financial year by the end of the fourth quarter of the current one. CRISIL has rated over 75,000 MSMEs so far.