Opportunities in the Indian Defence Market 2019

Emerging trends and focus areas

India's defence sector has been growing at a modest pace for the past few years. Modernisation of the armed forces and indigenisation of manufacturing have emerged as focus areas. The segment is receiving the much-needed push under the Make in India programme. The concept of import substitution is being gradually accepted by stakeholders. This is an opportune time to embark upon a new phase of self-reliance in the sector by manufacturing technologically advanced equipment within India.

Defence production in India is gradually heading towards private sector participation. Between 2015-16 and 2018-19 (April-October), out of a total 188 contracts, 121 contracts have been signed with Indian vendors including DPSUs/PSUs/OFB and private vendors for capital procurement of defence equipment. The equipment to be procured includes Helicopters, Naval vessels, radars, ballistic helmets, artillery guns, simulators, missiles, bulletproof jackets, electronic fuzes and ammunition.

DPP 2018 is a step towards creating an industry-friendly structure to facilitate better contract negotiations and improve the pace of contract awards. Breakthroughs like Make procedure, strategic partnership (SP) model, liberalisation of FDI norms and creation of a level-playing to private industry have been introduced. However, the strategic partnership (SP) policy has several shortcomings which might create barriers in realising the goals.

Progress under offsets

The objective of the Indian defence offset guidelines to encourage foreign vendors to engage in the complete transfer of technology arrangements with Indian offset partners has remained largely unmet. That said, the government is set to announce radical changes in the guidelines to bring in investments in the defence and aerospace segments. As per the India Infrastructure Research, nearly $13.5 billion worth of defence offset obligations would be discharged in India by foreign OEMs in the eight to 10 years.

Outlook and opportunity

The size of the opportunity is huge. The government is looking at achieving a turnover of Rs 1.7 trillion in military goods and services by 2025 and the SP model is envisaged to capitalise this opportunity and contribute to Make in India programme. The target also is to achieve export of Rs 350 billion (USD 5 billion approximately) in defence goods and services by 2025. As per the acquisition plans of the three armed forces in the next 10 years, the industry is expected to acquire capital assets worth Rs 15 trillion.