Defence IndustryPrivate Sector

MSMEs In Defence Sector May Get Working Capital Financing Boost With TReDS Integration

India’s Defence Production Policy of 2018 (DPrP-2018) is a key part of the mission to boost exports and reduce the trade deficit. The Indian government has set a goal of becoming among the top five global producers of the aerospace and defence manufacturing with an annual export target of $5 Bn by 2025.

A key role here is being played by the MSME vendors who supply all kinds of arsenal and protective military gear such as gloves and helmets to defence forces.

These MSMEs are state-owned suppliers. However, they often struggle to manage their working capital requirements as the contractual payouts to them often get delayed due to limited treasury allocations.

Recently an ET report highlighted that to help such vendors, defence secretary Ajay Kumar has initiated a discussion wherein these vendors will be connected to TReDS (Trade Receivables Discounting System). “We want the defence ministry to be the “pioneering government department” to be on-boarded onto TReDS,” Kumar said.

The discussions are at an early stage and the process has its own challenges considering the vendors need a NACH-compliant bank account to come onboard. Also, as per current law, defence ministry can only transact through a treasury account with the State Bank of India and NACH mandates cannot be given through these accounts.

A centralised online exchange being set up under the approval of Reserve Bank of India (RBI), the TReDS platform facilitates the financing of trade receivables of MSMEs from corporate and other buyers, including government departments and public sector undertakings (PSUs), through multiple financiers on a pan-India basis.

On November 24, 2015, Reserve Bank of India (RBI) granted “in-principle” approval to three companies to set up TReDS.

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