Business Opportunities

Sector Snapshot

India maintains the second largest, by size, standing armed forces in the world, is the eighth largest spender on defence and second largest importer of defence equipment (SIPRI, March 2019).Considering the size of Indian Defence Forces, and their modernisation needs, India has maintained a consistent defence spending pattern over the last decade to build defence capability, as also its defence industry base.

Size of Indian Defence Market
  • For Financial Year 2019 -20, Government of Indian has allocated a budget of Rs. 3,05,296Cr (approximately USD 43.6 Billion) for Indian Defence Forces, which is ~ 7% increase over Revised Estimates for 2018-19 @ Rs. 2,85,423 Crores.
  • Target Capital expenditure (purchase of new platforms and systems) for 2019-20 has been set at Rs. 1,03,394 Cr (approximately USD 14.7 Billion), which is ~ 10% increase over Revised Estimates for 2018-19 @ Rs. 93,992 Cr.
  • Defence Budget has maintained a steady ~ 7-8% CAGR over the entire decade from 2010-11.
  • Considering that Defence Forces would spend approximately 20% of Revenue budget towards “Through Life Support” of their existing assets, the size of Indian Defence Market is estimated to be ~ Rs. 1,43,774 Cr (approximately USD 20 Billion) and growing at healthy 8 – 10% CAGR.
  • Considering that Defence Forces would spend approximately 20% of Revenue budget towards “Through Life Support” of their existing assets, the size of Indian Defence Market is estimated to be ~ Rs. 1,43,774 Cr (approximately USD 20 Billion) and growing at healthy 8 – 10% CAGR.
Indian Defence Industry
  • India has a vibrant, multi-Tier Defence Industry Base.
  • Till 2001, Indian Defence Sector predominantly comprised of Defence Public Sector Units and Ordnance Factories, who manufactured all types of equipment, systems and platforms for the three Defence Services – the Indian Army, Indian Navy and Indian Air Force. Government of India have allowed 100% participation by Indian Private Industry in defence sector since 2001, with the conditions that the participants should obtain requisite defence industry licence and have Foreign Direct Investment less than 26%. (FDI limit has since been revised to 49% by automatic route, and beyond 49% with Government approval).
  • The Sector has therefore evolved very fast during the last decade. Apart from public sector, through 09 DPSUs and 41 Ordnance Factories, many private industries groups are now prominent entities in the Indian Defence Industry Landscape. Notably, over 5000 Micro, Small and Medium Enterprises (MSMEs) form an important part of the eco-system and significant contribution to the Sector’s revenue.
  • For 2018-19, revenue (Value of Production) of Indian Defence industry is estimated to touch ~ Rs. 70,000 Cr (~ USD 10 Billion).
  • India has a vibrant, multi-Tier Defence Industry Base.
  • Till 2001, Indian Defence Sector predominantly comprised of Defence Public Sector Units and Ordnance Factories, who manufactured all types of equipment, systems and platforms for the three Defence Services – the Indian Army, Indian Navy and Indian Air Force. Government of India have allowed 100% participation by Indian Private Industry in defence sector since 2001, with the conditions that the participants should obtain requisite defence industry licence and have Foreign Direct Investment less than 26%. (FDI limit has since been revised to 49% by automatic route, and beyond 49% with Government approval).
  • The Sector has therefore evolved very fast during the last decade. Apart from public sector, through 09 DPSUs and 41 Ordnance Factories, many private industries groups are now prominent entities in the Indian Defence Industry Landscape. Notably, over 5000 Micro, Small and Medium Enterprises (MSMEs) form an important part of the eco-system and significant contribution to the Sector’s revenue.
  • For 2018-19, revenue (Value of Production) of Indian Defence industry is estimated to touch ~ Rs. 70,000 Cr (~ USD 10 Billion).
Growth Drivers
  • Modernisation Plans of Indian Defence Forces are substantial, and cover very wide spectrum of systems, platforms and technologies. As per the existing trends, Indian Government will spend an estimated 250 Billion USD towards modernisation of its defence forces over the next 10 years.
  • Ministry of Defence, Government of India have undertaken many policy initiatives to create a conducive business environment for enhancing participation of Indian Private Industry in defence sector. Such initiatives, under the flagship “Make in India” program of GoI, include:
    • DPP 2016 with enabling provisions for enhancing participation of Indian industry, both public and private.
    • Higher priority for acquisition schemes under “Make in India” categories, where Indian Industry would play the lead role.
    • Encourage indigenous design and development of defence equipment and platforms by Indian industry, in collaboration with R&D organisations and academic institutions, through simplified “Make-I” and “Make-II” procedures. These procedure permit sourcing of matured technologies through technical collaborations with foreign manufacturers.
    • Introduction of Strategic Partnership Models for select segments viz. fighter aircrafts, helicopters, submarines and Armoured Fighting Vehicle, of defence sector. The SP Model facilitates partnerships with Indian industry and foreign OEMs, who shall be designated Strategic Partner, through an elaborate, comprehensive and transparent process for each of the segments.
  • Government of India encourages co-development and co-production models of industry to industry co-operation between Indian and foreign industries. “Buy and Make” schemes, provisions of offsets in DPP facilitate transfer of technology to Indian industry, and definition of Indian Vendor permits Joint Ventures between Indian and Foreign industries to participate in defence procurement schemes. Several Indian industries have therefore formed joint ventures with foreign OEMs to address Indian as well as global demand in many segments of defence and aerospace.
  • The following quotes from the Indian Defence authorities clearly highlight the potential and attractive ness of the Indian Defence Sector for Indian as well as foreign industries.
    “In the last four financial years i.e. from 2014-15 to 2017-18, Government has accorded Acceptance of Necessity (AoN) to 151 proposals, worth Rs.2,66,700 Crore approximately under ‘Buy (Indian-IDDM)’, ‘Buy (Indian)’, ‘Buy and Make (Indian)’ or ‘Make’ categories of capital procurement as per Defence Procurement Procedure (DPP), which means Request for Proposal (RFP) shall be issued only to Indian Vendors”.
  • “In the last four financial years i.e. from 2014-15 to 2017-18, 128 contracts worth Rs.1,19,000 Crore have been signed with Indian vendors for capital procurement of defence equipment.”
    • This Information was given by RakshaRajyaMantriDr.SubhashBhamre in a written reply to Shri Manish Gupta in Rajya Sabha 30 Jul 2018
    On Draft Defence Production Policy 2018
    “The policy aims to achieve self-reliance by 2025 in several weapon systems, including helicopters, fighters, warships, tanks and missiles; raising defence exports to $5 billion annually by 2025, and producing defence goods and services worth Rs. $26 billion by that year to create employment for 2 to 3 million people.”
    "The targets set in the DProP are actually under-ambitious. The indigenous defence industry currently has a turnover of about Rs. 700 billion. Raising this to Rs. 1.7 trillion by 2025 would require a CAGR (compounded annual growth rate) of just 13.5 per cent. That is achievable,"
    • - Secretary Defence Production, April 2018
  • And if one were to draw conclusions from the projections of overall growth of the Indian economy during the next decade, it would be hard to miss the huge opportunity that the Indian Defence sector itself would become, merely at 2% of India’s GDP.
    "India is growing at a fast rate and will be a $5 trillion economy in another 7-8 years. By 2035, it will be a $10 trillion economy and we are preparing for that in an aggressive way," .....
    • Shri Suresh Prabhu Union Minister for Commerce and Industry in a recorded message at the inauguration of India International Trade Fair on 14 Nov 2018
Key Statistics:
  • Steady growth at 8 – 10% CAGR
  • Micro, Small and Medium Enterprises (MSMEs): 5000>
  • 49%> FDI permitted with Government approval
  • 369 Defence Industrial Licences issued till end of FY 2018-19