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India's defence, aerospace MSMEs up in arms over contract cancellation

The Modi government has “cancelled” orders worth Rs 6,000 crore with the Micro Small and Medium Enterprises (MSMEs) working in the defence and aerospace sector in India
Jun 6, 2018
The Modi government has “cancelled” orders worth Rs 6,000 crore with the Micro Small and Medium Enterprises (MSMEs) working in the defence and aerospace sector in India, due to which the sector that produces packaging, fuses and other vital equipment related to ammunition is on the “verge of dying”, representatives said.
Agitated senior members of the Federation of  MSME Vendors of Defence and Aerospace, addressing a press conference at the Press Club of India in New Delhi, said that the Modi government despite its emphasis on ‘Make in India’ and self reliance in defence manufacturing, was sending “termination of contract notices” to MSMEs.
“We have approached the Ministry of Defence, the PMO, but there has been no response so far. We will file a PIL in the Supreme Court if the government does not attend to our complaint,” said federation chairman Neeraj Raizada.
To a question on what could have prompted the government’s sudden move to cancel contracts, one of the federation officials said that “an informed lobby” was working to cancel the contracts.
“The MSMEs are on the verge of dying now. There are 6,000 MSMEs in this sector, and cancellation of contract will affect six lakh workers. How will we run the system, pay the salaries, our rents for factory space etc. Some of us have been in the business for 30 years and some even for 50 years. This is the first time such a thing has happened,” said Raizada.
The  federation says they received letters in May informing them of termination of the contract, after which they approached the MoD and PMO.
“This is a bhrasht (corrupt) system. It does not support us. We went to them for help, instead they have ended the whole thing.”
“On the one hand they say they have no ammunition for beyond the next 10 days and then they suddenly stop MSME orders. If they want more ammunition, then the only way is to import. To set up an MSME in defence it takes 5-10 years to establish itself. But they have finished us in one blow,” another federation official said.
According to Raizada, the MSMEs manufacture 64 per cent of the complex defence assembly supplies.
“Why are they particularly targeting the MSMEs. The letters cancelling the orders, worth Rs 6,000 crore, have started coming to all the MSMEs. It has created chaos,” he said.
According to the federation, the reason mentioned in the government communication is that “ultimate users (i.e Indian armed forces) for which they used to procure items have curtailed their requirements”.
The federation says that orders had already been placed by the MSMEs for raw material and advance payments made before the letters cancelling the contracts arrived. “All the raw material will now go as scrap due to the government’s move,” said Sunil Patodia, president of the federation.

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