The Indian Defence Industry has grown substantially in recent years. With a CAGR of 10%, it is a strategically important sector in India and with the strength of over 1.3 million active personnel, it is the world’s 3rd largest military force and has the world’s largest volunteer army.
India’s Defence Sector received a boost of about 6% in defence expenditure in the Union budget 2017-2018, released on 1st February 2017. With a budget allocation of $ 53.5 billion to the Ministry of Defence ($41.1 billion for defence expenditure excluding pensions), India is the world’s fifth largest spender on defence. India holds the title of the ‘world’s largest arms importer’, and between 2012 and 2016, the country accounted for 14% of all global arms exports. This is likely to change with the Government’s target to step up local sourcing to 70% and in turn reduce the defence budget by 50% within a decade.
The Government convinced that domestic weapons production can provide jobs, budget savings and technological know-how — put defence at the heart of its drive to boost local manufacturing. A few Indian companies, including Larson & Toubro Ltd, Mahindra & Mahindra Ltd, Tata Advanced Systems Ltd and Reliance Defence and Engineering Ltd, are already seeking to become the Boeings and Lockheed Martins of India, collaborating with global defence manufacturers to locally build advanced military hardware.
The ‘Make in India’ campaign seeks to cut the country’s dependence on imported weapons and offers several opportunities for collaboration between Indian and foreign investors in the defence sector. Moreover, it positions the country as a hub of defence manufacturing. Therefore, India has signed 51 contracts valued $ 17.39 billion with foreign vendors for buying weapons and defence equipment and 90 deals worth $12.49 billion inked with Indian suppliers, in the last three years. Recognising the huge potential from the defence sector, several states, like Gujarat, are also offering incentives and allowances in the form of aerospace clusters or Special Economic Zones (SEZs) for developing an ecosystem where all defence manufacturing activities can smoothly co-exist.
The domestic industry seems poised for a period of rapid growth due to its current size, longevity, and competitive advantages. Moreover, India has the potential to become an attractive destination for foreign governments and companies that need engineering services and components. These opportunities leverage two of India’s key advantages: India’s low-cost base for manufacturing and its steadily growing pool of skilled engineers. Over the last three years India has received an FDI of under $1 million in the defence sector and the Government is keen on increasing it. With the defence remaining within the Government’s high priority focus area, the country will soon emerge as a preferred destination for the co-development and co-creation of a domestic and self-supporting defence manufacturing ecosystem.
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