Bengaluru, NFAPost: It is a reality that India is going to be one among the global trio that will be at the centre stage in taking decisions with international ramifications. Also, there is a renewed realisation to strengthen its defence capabilities to bring the balance of power in global power politics. The defence industry is an important component in strengthening the country’s global advantage and taking on adversaries who are posing a threat in the neighbourhood.
Besides the demand growth due to the rising concern of national security, the Indian defence industry is facing the challenge of harnessing critical technologies so that it will give the country an edge over other global forces. Due to the ongoing territorial disputes with Pakistan and China over the ownership of the Northern State of Kashmir and the North Eastern State of Arunachal Pradesh respectively, there is a real urgency to strengthen the defence industry capabilities.
As a prelude to this strategic direction, the Government of India changed the automatic route limit for FDI in the defence sector to 74%. This is expected to boost national security, and self-sufficiency in product design, and increase investments, income and employment. Shifting its priority on defence PSUS, the Government of India opened the defence industry for private sector participation to provide impetus to indigenous manufacturing.
We can see a clear focus of the government and policy shift in November 2021 as the Defence Acquisition Council (DAC) boosted the ‘Make in India’ initiative by according to Acceptance of Necessity (AoN) — to capital acquisition proposals worth Rs. 7,965 crores (US$ 1.07 billion) — for modernisation and operational needs of armed forces.
On October 15, 2021, Prime Minister Narendra Modi dedicated the seven defence public sector undertakings (PSUs)—created through the restructuring of the Ordnance Factory Board (OFB)—to improve functional autonomy, efficiency, growth potential and innovation in the defence sector. Defence Minister Rajnath Singh approved the budgetary funds’ worth Rs. 498.8 crores ($ 66.83 million) to Innovations for Defence Excellence (iDEX), a Defence Innovation Organisation (DIO) for the next five years.
Indian military
India is one of the strongest military forces in the world and holds a place of strategic importance for the Indian government. The top three largest market segments of the Indian defence sector are military fixed wing, naval vessels and surface combatants, and missiles and missile defence systems.
Some of the other well-known segments are military rotorcraft, submarines, artillery, tactical communications, electronic warfare, and military land vehicles. Some of the major defence manufacturing companies in India are Bharat Earth Movers Ltd. (BEML), Bharat Electronics Ltd. (BEL), and Hindustan Aeronautics Ltd. (HAL).
The Indian defence manufacturing industry is a significant sector of the economy. The industry is likely to accelerate with rising concerns about national security. Demand for defence equipment in India has been growing due to the ongoing territorial disputes with Pakistan and China over the ownership of the Northern State of Kashmir and the North Eastern State of Arunachal Pradesh, respectively.
Over the last five years, India has been ranked among the top importers of defence equipment to gain technological advantages over rival countries such as China and Pakistan. To modernise its armed forces and reduce dependency on external dependence for defence procurement, several initiatives have been taken by the government to encourage ‘Make in India’ activities via policy support initiatives.
Market Opportunity
According to the global power index, the Indian defence sector ranks fourth in terms of firepower with a score of 0.0979 (with 0.0 being the perfect score). The Indian government has set the defence production target at $25 billion by 2025 (including US$ 5 billion from exports by 2025). India is one of the world’s biggest defence spenders with a total outlay of Rs 5.25 lakh crore ($66 billion), accounting for 13.31% of the total budget and indicating an increase over the budget estimates of 2021-22 by Rs 46,970 crore (US$ 5.9 billion).
India’s defence import value stood at $463 million for FY20 and is expected to be at $469.5 million in FY21. India targets to export military hardware worth Rs 35,000 crore ($5 billion) in the next 5 years. As of 2019, India ranked 19th in the list of top defence exporters worldwide by exporting defence products to 42 countries. Defence exports in the country stood at Rs. 1,381 crores (US$ 173.32 million) in FY 2022-23 (until 1 August 2022).
In November 2021, Defence Minister Rajnath Singh inaugurated the first private operationalised defence manufacturing facility in the Uttar Pradesh Defence Industrial Corridor (UPDIC), in Lucknow. The facility operated by Aerolloy Technologies — a wholly owned subsidiary of PTC industries — will manufacture parts for aircraft and helicopter engines, structural components for aircraft, drones and UAVs, submarines, ultra-light artillery guns, space launch vehicles and strategy systems.
Defence PSUs
Indian defence production still has a major say from government-led organisations like Ordinance Factory, Defence Research and Development Organisation (DRDO), BHEL, BEL, and HAL, among others. Defence production by PSUs stood at Rs. 10,831 crores (US$ 1.36 billion) in FY 2022-23 (until 1 August 2022). At the same time, the overall defence production stood at Rs 17,885 crore ($ 2.24 billion) in FY 2022-23 (until 1 August 2022).
The Startup Incubation and Innovation Centre, IIT-Kanpur (SIIC IIT-Kanpur) recently signed an MoU with Defence Innovation Organisation (DIO) to nurture and support start-ups and SMEs in the defence sector through its flagship programme iDEX Prime.
In November 2021, to demonstrate the growing India-Israeli technological cooperation, the Defence Research and Development Organisation (DRDO), India and the Directorate of Defence Research and Development (DDR&D), Ministry of Defence, Israel, entered a Bilateral Innovation Agreement (BIA) to promote innovation and R&D in start-ups and MSMEs of both countries for the development of dual-use technologies.
The 11th Defence Technology and Trade Initiative (DTTI) Group meeting between India and the US was held virtually on November 09, 2021. The aim of the DTTI Group is to focus on a bilateral defence trade relationship and create opportunities for the co-production and development of defence equipment.
The 12th edition of DefExpo at Gandhinagar in Gujarath will showcase India’s land, naval, air and homeland security systems. The aim of DefExpo-2022 is to build and achieve ‘Aatmanirbharta’ (self-reliance) in defence and increase defence exports to $5 billion by 2024.
