With Defence Minister Rajnath Singh belonging to Uttar Pradesh, the state is likely to get priority in matters related to defence.
According to sources, the Yogi Adityanath government plans to modify its policy for the upcoming 'defence corridor' and make arms, ammunition and explosives manufacturing units eligible for incentives.
The move is to attract small and medium enterprises, as well as foreign and domestic investors seeking to meet their offset obligations in the defence sector.
The foundation stone of the defence corridor, a project of the Uttar Pradesh government and the Centre, was laid by Prime Minister Narendra Modi in February this year.
The project is set to come up on over 5,000 hectares in around the six nodes of Lucknow, Kanpur, Agra, Aligarh, Jhansi and Chitrakoot.
Investments worth Rs 4,000 crore have already been received and the project is expected to attract Rs 20,000 crore.
The state government's proposed changes to its Defence Policy 2018 are inspired by the policies of Gujarat and Tamil Nadu.
A major change proposed is inclusion of the manufacture of arms, ammunition and explosives as an investment area for the defence corridor. These areas will be eligible for higher incentives as proposed in the new policy.
The proposal is designed to attract a big portion of fresh offset obligations to be discharged by companies in India over the next decade.
According to a senior official, the government will provide necessary support to industry for interaction with Defence Offset Facilitation Agency to encourage foreign/domestic investors to invest in UP Defence and Aerospace Parks/Clusters to meet their offset contractual obligations.
The government also proposes to offer 30 per cent reimbursement of purchase price of land and full waiver of stamp duty for such units.
It also proposes the setting up of a common facilitation centre to provide the support to micro, small and medium enterprises within the corridor.
The Uttar Pradesh government may even become an equity partner in the projects by providing land plus a soft loan. Higher incentives are also on the anvil.
The state cabinet will soon decide on the proposed policy, the official said.
Government sources said that efforts would be made to set up the new projects in the Bundelkhand region which would generate employment opportunities.
"For new projects and expansion, investments up to Rs 10 crore are proposed to be given a back ended capital subsidy at the rate of 10 per for anchor units and 5 per cent for vendor/MSME units. Units established in the Bundelkhand region of the state will be provided an additional capital subsidy of 50 per cent over and above these limits. Aircraft maintenance, repair and overhaul could get 50 per cent reimbursement of state goods and service," the official said.
Uttar Pradesh already has multiple Aerospace and Defence companies such as HAL, various OFBs, BEL, etc who have an eco-system of vendors and suppliers across the length and breadth of the country. These companies can be incentivized for sourcing locally within the state.
The incentive can be in the form of input subsidies (electricity, land registration a direct cash benefit which these companies can use for their own capital growth or expansion). This will help the complete supply chain grow from the original equipment manufacturer (OEM) to the various tiered suppliers.
The state government is also toying with the idea of setting up skill centres as centres of excellence in identified key areas where the relevant bench strength in India is at low levels. The government can look at funding the training costs of people whose domicile is from Uttar Pradesh and are going to work in the state's aerospace industry.
The recruitment, training and maintenance of qualified personnel and the instruments is not only a heavy cost, but the availability is also a challenge since the current prevailing aerospace and defence clusters are in Bengaluru or Hyderabad.