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Prospects for Global Defence Export Industry in Indian Defence Market
CII Indian Defence Industry Mission EUROSATORY 2010
CII Indian Defence Industry Mission EUROSATORY 2010
1. 2. 3. 4 5 6 7 8 9
Foreword from CII Preface from Deloitte Executive summary Indian defence requirements Domestic capacity Financial implications Benefits in Indian defence industry and barriers thereto Strategic Alliances Conclusion
4 5 6 14 37 46
50 56 64 67 68 69 73 76 77
10 A brief about CII 11 A brief about Deloitte 12 Annexure 13 Abbreviations 14 Acknowledgement
Prospects for Global Defence Export Industry in Indian Defence Market | 3
1. Foreword from CII
The opening up of the Indian economy during the early nineties heralded an era of unprecedented industrial growth in India. The growth rates seen match those of the fastest growing economies. A confident and resurgent Indian Industry is making forays into almost all the sectors of manufacturing. Lately, the huge opportunities for growth within the domestic and global defence and aerospace industries have attracted the attention of Indian industry. India is one of the largest global military spenders. In the Union Budget 2010-11, expenditure is of about USD 32.03 billion has been earmarked for national defence, which has been increased from USD 29.62 billion revised estimates for the last year. The total defence budget has increased by 8.13 % and out of which budget for capital acquisition of USD 13.04 billion has been increased by 25.46 % from last year. Outright purchase and upgradation and maintenance of the existing equipment for modernisation will continue to provide immense opportunities to the industry in the coming future as well. The Indian defence industry has evolved and has been developing capabilities in land, naval and air systems. After the introduction of defence Offset Policy, India is gradually becoming a key outsourcing hub for the global defence industry. The continuous revisions of the Defence Equipment Procurement Procedures in the recent past suggest the intent of the Indian Government to streamline the procedures and make the system more transparent. Confederation of Indian Industry (CII) views
the introduction of “Buy & Make (Indian)” category in Defence Procurement Procedures in November 2009 as a very positive step. It would encourage the participation of the Indian private industry in defence acquisitions. CII has been playing an active role in the areas of steering defence policy formulation, market development, trade promotion and formulation of international joint ventures and technology transfers. It is with this objective that CII in partnership with Deloitte is publishing this report to bring to the notice of global and domestic defence industry of the opportunities for them for the defence requirements in India. I hope that this report will enable the domestic and the global defence companies to understand the emerging business opportunities in the areas of defence and to understand the defence ecosystem in India. Further, this will help foreign OEMs and defence major companies to understand the Indian capabilities for making investments in India in this sector.
Gurpal Singh Deputy Director General & Head- Defence & Aerospace Confederation of Indian Industry Amit Kumar Singh Director (Defence and Aerospace/Security/Space) Confederation of Indian Industry
CII Indian Defence Industry Mission EUROSATORY 2010
USD 32. 1 The key drivers of Indian aerospace and defence industry are high domestic demand. security. Currently. In India. setting up measures like supply chain management. India. talent base and leveraging IT competitiveness. In light of the Mumbai attacks as well as the overall need to modernize its defensive capabilities. There are greater opportunities for Indian defence industry to work with partnership or in collaboration with overseas companies. taxes and various legislations etc. as well as participants in the supply chain.2. foreign acquisitions are expected to be more affordable at this time. certifications.03 billion has been earmarked for national defense. In other words. offset policy. This would give them a presence abroad to interact and do business with OEMs and suppliers directly. Industry consolidation in India may be on the upswing for larger companies that have desire to enter manufacturing businesses. There are challenges too. cost advantages. complex tax laws. the latter coinciding with the last phase of India’s ambitious military modernisation plan. USD13. Deloitte India Nidhi Goyal 1 eloitte compilation: D Compass 2010 Global Aerospace & Defense sector outlook Prospects for Global Defence Export Industry in Indian Defence Market | 5 . Preface from Deloitte The global Defence industry is truly at an inflection point and we see it continuing to move rapidly east — toward China. Of this. Kumar Kandaswami Senior Director. India’s armed forces are expected to increase their purchases of new equipment and technology for the next 20 to 25 years. and the Middle East. In 2010-11. These countries are expected to be large markets for A&D industry products and services. while simultaneously harnessing the advantages that India as a manufacturing destination provides. with the third-largest defense procurement budget in Asia.20 billion for capital acquisitions) which could make it one of the most attractive defense markets in the world. In the near term. India is likely to spend nearly USD 100 billion on military procurement during the current five year plan (2007-12) and USD 120 billion in the next plan period (2012-17). about 70 percent of procurement in value terms is from foreign sources-with Indian companies supplying only around 30% indigenous items (including 25 percent of components and subassemblies) to state-owned companies. India is becoming one of the largest military spenders in the world and catching worldwide attention. customs clearances. quality assurance. Liberalization of India’s defense procurement policy offers a unique opportunity for Indian companies to provide services for the armed forces. the aerospace and defence sector is growing at an unprecedented rate and emerging as a key participant in the Asia Pacific region. United States and European aerospace companies are now recognizing India as a critical market as well as a potential manufacturing partner. foreign companies will likely continue to have an edge in the supply of defence armaments and transfer of technology. It is estimated that Indian defence procurement will rise to an estimated USD 42 billion by 2015 (including USD 19. thus enabling them to have broader market access. In India. such as infrastructure.04 billion is to be spent on acquisitions for new weapons systems equipment and services.
1 Background Over the past decade. Executive summary 3. During this time India has been increasingly moving towards a more open-market economy. This has catalysed India to be one of the fastest growing emerging markets. Many of the assets India is acquiring are at the leading 6 | CII Indian Defence Industry Mission EUROSATORY 2010 . reducing historic controls on foreign trade and investment and privatising a range of government-owned companies across a range of sectors. Realising that the Revolution in Military Affairs (RMA) effectively passed India by in the 1990s. capability and self-reliance of its Defence Armed Forces.3. Its acquisition plans include a substantial procurement program for the Army. The IMF in 2009 projected India’s GDP would grow in real terms by more than 7. with its GDP growing by seven per cent each year on an average since 1995. the government is seeking to develop a flexible. Both China and Pakistan have significantly expanded their military capabilities in the past decade. Following the Kargil conflict in 1999.5 per cent on an average from 2010 to 2014. the Indian Ministry of Defence has put into motion plans for an unprecedented modernisation program of its defence capabilities. from airports to electricity generation to telecommunication firms. Navy and Air Force. India faces the theoretical prospect of a war on two fronts. mobile and networked defence force with substantial power projection capabilities. India has seen its economic capacity to fund its capability modernisation expand almost exponentially over the past two decades. one with a major power rival (China) and the other with a powerfully-armed middle power that poses potential threats to its homeland security (Pakistan). aimed at increasing the size. engineering and ICT industries and is forecast to continue. In this context. India was confronted with the recognition that much of its Soviet-era equipment was outdated and obsolescent compared with its regional rivals. India has embarked on a major defence acquisition program. The scale of the planned investments reflects both its need to make up for lost time as well as its expanding economic power. India’s economy is projected to be 60 per cent of the size of the United States economy by 2025 and second only to China by 2050. India’s ‘economic miracle’ has been underpinned by a significant expansion in its advanced manufacturing.
Prospects for Global Defence Export Industry in Indian Defence Market | 7 .
tempers the estimate of the overall opportunity.2. including through the introduction of offsets requirements for designated equipment. By 2022.20 billion by 2015 (Table 1). which will benefit from increasing requirements to ‘buy local’ as well as taxation arrangements that advantage domestic firms. The parallel challenge for India in meeting its policy objectives will be expanding its indigenous production capabilities at the same time as meeting its ambitious acquisition agenda. Navy and Coast Guard acquisitions The Indian Government has publicly recognised that India’s expanding maritime responsibilities and interests necessitate enhancement in naval and coast guard force levels.3 per cent from 2012 to 2015. including 180 Sukhoi Su-30MKI aircrafts. Taking account of inflation. More than USD 42 billion in total defence expenditure is targeted by 2015. on which it continues to have a strong reliance. however. potential regulatory barriers to foreign firms and indigenous production advantages. India has imported more than 70 per cent of its defence assets. the Indian Navy has plans to have a 160-plus ships Navy. The Indian Coast Guard is all set to double its force levels and manpower in the next few years and triple it in the next decade in order to protect the country’s maritime zones and assets. 3. and close to 400 aircrafts of different types.20 billion would be expected to be spent on capital equipment for the Defence Armed Forces. and Deloitte Analysis of allocations by Service Division.edge of technology. most notably from Russia. Historically. Union Budget(s) & Economic Survey 2003-2011. such as risks of the Indian Government being unable to commit to the identified plans (fiscal capacity assessment).8 per cent from 2003-2010).1 Key findings: acquisition plans by each domain India’s budgeted acquisition plans are expected to see an overall expansion of capital expenditure from approximately USD 19. Over the past decade the Ministry of Defence has implemented a series of reforms to its procurement policy framework with the aim of reversing this historical spending pattern.2 Objectives The primary objective of this study is to provide the Global Defence Industry with information on India’s defence requirements across four key domains: • Maritime (Navy and Coast Guard) • Land • Aerospace • Electronics In addition. 3. advanced Russian T-90 main battle tanks and state-of-the art information and communication systems. The sheer volume of planned expenditure is expected to create new opportunities for foreign firms. India’s domestic defence sector. including three aircraft carriers. Moreover. The Defence Service’s capital expenditure budget is expected to achieve a compound annual growth rate (CAGR) of 10 per cent from 2011 to 2015. Dec 2009. Table 1 : Projected expenditure by each Service Division (USD million) 2010-11 Capital Expenditure (USD million) Army (53 %) Navy (16 %) Air Force (31 %) 13110 6948 2098 4064 2011-12 14421 7643 2307 4471 2012-13 15863 8407 2538 4918 2013-14 17450 9249 2792 5410 2014-15 19195 10173 3072 5950 Total 2011-2015 80039 42421 12806 24812 Source: Indian Thirteenth Finance Commision Report. when accounting for India’s inflation rate. This represents a marginal slow down in budgeted expenditure from the past decade (CAGR of budgeted expenditure of 13. will also likely require specialist inputs into both platform and systems development that can be met by foreign firms. the report seeks to highlight both potential opportunities for global defence exporters as well as potential risks to these opportunities. Scorpène class submarines. 8 | CII Indian Defence Industry Mission EUROSATORY 2010 . 60 major combatants (including submarines). the real growth in Defence Service capital expenditure is expected to be marginal over the next two years before increasing to a real growth rate of about 5. as total spending will grow in absolute terms. of which approximately USD 19.
Naval acquisitions have been earmarked for the greatest degree of indigenisation across each of the four domains. Upon completion of the six Scorpène class submarines currently in production. destroyers. India has developed strong relationships with French firms. which have been transferring technology to local firms through a range of recent contracts. we would be able to attract international customers. including additional frigates. Examples of equipment contained within this plan include gas turbines.e. however. there is also a need to create an R&D base. and it has had the best track record among the services for delivering projects to budget and timelines. 2 ana’s Defence yearbook M 2010-11 India’s Ministry of Defence recently issued a tender for 16 advanced multirole helicopters and this request is likely to later expand by a further 44 aircrafts within the next few years. develop in-house design capability. … It would. so that Indian shipbuilding can achieve credibility as a source for delivering quality ships in time. As noted by the Indian Defence Review in 2010: “In both the naval and commercial sectors.” The Ministry of Defence (Navy) Indigenisation Plan (2008) lists forecast requirements of the Navy for marine engineering equipment. pressure cylinders. AEW aircraft. India expects to float a tender on six more diesel submarines. corvettes. not be in our interest to re-invent the wheel.While the smallest of the three Indian Defence Force Services. hydraulic manipulators. For integrated growth of the industry. diesel engines. adopt appropriate fiscal measures and remove administrative hurdles. Two aircraft carriers are also currently in varied stages of construction alongside eight Boeing P8-I Maritime Multi-Mission Aircrafts and 16 Mig-29Ks which are under production in Russia. In addition to the construction already underway. however. the Navy has further plans to acquire: • Submarines. Prospects for Global Defence Export Industry in Indian Defence Market | 9 . [Emphasis added] If we are able to produce ships which offer greater operational efficiencies i. twin engine helicopter fighters. lower running costs and longer service life. A key potential opportunity also exists to support the modernisation of Indian shipyards which lack both capacity and modern technology to undertake advanced production on such a large scale. air defence missiles. as well as lower acquisition costs than their peers. and motors. offshore patrol vessels. heavyweight torpedoes for submarines and additional warships. the Indian Navy is already a rapidly expanding maritime force with 36 ships and six Scorpène submarines currently on order. therefore strategies to incorporate the results of such research in indigenous shipbuilding need to be evolved. including both four nuclear and twenty four diesel-powered vessels • A range of additional warships. with a larger share of FDI offers an avenue to meet this objective. a mere increase in infrastructure will not ensure achievement of desired results. and other survey vessels • Navalised helicopters and aircrafts • Marine equipments and weapon systems India’s Ministry of Defence recently issued a tender for 16 advanced multirole helicopters and this request is likely to later expand by a further 44 aircrafts within the next few years. weapon systems and submarine equipment and systems from 2008-2022. infuse new technology. India already produces more than half of its acquisitions in this space. The JV route. It also plans to indigenously build between three and five additional nuclear-powered Arihant class submarines. The Navy also requires unspecified numbers of unmanned aerial vehicles (UAVs). develop skilled workforce.
Land acquisitions Indian Army acquisition plans include upgrades and purchases of artillery.184 guns over 20 years.44 billion.71 billion in funding In defence acquisitions. To augment the force level of the Coast Guard. Army aviation would also be inducting about 300 helicopters together with the Indian Air Force trials for which are in the final stages. comprising artillery. 10 | CII Indian Defence Industry Mission EUROSATORY 2010 .2 billion worth 10C-17 aircraft and the Army is finalizing the purchase of 145 ultra light howitzers worth about USD647 million. In relation to tanks and vehicles. at a minimum rate of 100 units per annum. Many acquisitions outlined appear to be part of the USD 8 billion artillery modernisation program.09 billion (mainly to replace ageing MiG 21s) . Aerospace acquisitions The major acquisitions of the Air Force over the next decade will be: • 180 Sukhoi Su-30MKI aircrafts at a value of more than USD 9. the main planned acquisitions include upgrades and acquisitions of main battle tanks. Key acquisitions planned under the FARP include: • Air Mobile Ultra light howitzers • Towed and wheeled 155mm guns • Self-propelled tracked and wheeled guns • Mounted gun systems. India’s main air defence systems include the SAM-6 (Kvadrat). tanks and vehicles. six multimission-maritime patrol aircraft and twin-engine helicopters.2 The Indian Coast Guard is 70% short of its requirements and therefore modernizing of the country’s maritime forces was the top priority. armour and motorised infantry. The IAF is currently in the final stages of negotiations for purchase of USD 2. for which competitive field trials are underway between six international companies • 120 indigenously produced Tejas fighters.600 guns. The FARP is expected to require the purchase of between 2. The coast guard is hoping to induct these assets during 11th five year plan period (2007-12). The final main area is in upgrades to air defence systems. the Indian Army has designated around 600 modernisation schemes. Given the urgent requirement for ultra light howitzers at the Line of Actual Control (LAC) – the effective border between India and China – the Foreign Military Sale route for expediting sales has been cleared by the Defence Acquisition Council. 20 fast patrol vessels and 12 Domier aircrafts. The program aims to induct around 2. amounting to around USD 1. In its 11th Defence Plan. some 70 would be bigger vessels like AOPVs. UAVs and infantry fighting and light strike vehicles (to replace ageing BMP-1 and BMP-2 infantry combat vehicles). the government has sanctioned 40 ships. The coast guard is reportedly eyeing upon maritime ambitious ramping up of its assets to 217 ships and 74 aircrafts in next five years from the present strength of 76 ships and 45 aircrafts. of the new ships. Production on land acquisitions has suffered a serious slowdown in 2009 and consequently India is well behind plan in this sector relative to budget.700 and 3. The intention is to create eight divisional-sized armoured battlegroups. 7 offshore patrol vessels. interceptor boats and inshore patrol vessels.48 billion over the next 15 to 20 years. originally formulated in 1999.9 billion • MMRCA at a value of more than USD 9. all of which are at or near obsolescence. FARP. involving acquisitions of between USD 4. this is perhaps the sector where there are significant opportunities for firms with specialised knowledge looking to enter the Indian market. for which the government recently announced an additional USD 1. 20 boats and 42 aircrafts.77 billion and USD 6. with state of the art communications equipment and coordinated air support. missiles and other items such as infantry upgrades. SAM-8 OSA-AK and Tungushka systems. spanning 2007-2012.
hand held thermal imaging devices for night vision. with United States. integrated observation equipment and short range secure radio sets in significant quantities. this is perhaps the sector Prospects for Global Defence Export Industry in Indian Defence Market | 11 . but has been estimated to be in the order of USD 9. Dassault (France – Rafale). with the MiG’s increasingly obsolete systems needing to be upgraded and safety features improved to maintain current squadron numbers. Modern strategic and tactical command and control systems are also required. European and Israel firms in particular. given the legacy distortions in the markets from controlling private sector participation in defence acquisitions. new generation gyros. Although India has a strong engineering skills base and growing ICT industry. DF and communication and equipment and with enhanced perimeter security arrangements. Recently. Shortlisted firms in bid for the MMRCA production include Lockheed Martin and Boeing (United States – the F16 and F/A 18 fighters.g. multi-functional radars with capability to integrate various surveillance/weapon delivery systems. Tata). the MMRCA and Tejas programs) will mean that the existing but aged MiGs will need to be kept in service for a longer period than initially planned. The Chief of the Defence Research and Development Organisation (DRDO) has recently stated that they are also seeking industry partners to co-develop technology related to gallium nitride semi-conductors and nanotechnologies related to structures. and RAC MiG (Russia – MiG-35). a key risk for the Air Force is that delays and cost overruns in the new fighter programs (in particular. EADS (European Consortium – Eurofighter Typhoon). India has historically sourced much of its aircraft from Russia. Aerospace continues to be a sector where India struggles to indigenise production. propulsions and communication..9 billion • Upgrades of more than 60 MiG 29 fighters. and some significant domestic competitors (e. The Air Force would also be modernizing its airfields with sophisticated radars. it has been announced that the Air Force would also like to upgrade avionics in the Cheetak helicopter and in MiG-29s. new generation logs and new generation echo sounders between 2008 and 2022. Key acquisitions by Service include: • Navy systems – The Indian Navy is seeking sonars. airborne warning and control systems and new generation air defence systems. Electronics acquisitions Electronics acquisitions are subsumed under each Service Division (Army. aerostats. The Coast Guard is seeking coastal surveillance radars and sophisticated long range electrooptic solutions for offshore security. Navy and Air Force) in India’s forward budget plans. stand alone infrared seismic and acoustic sensors. sensors. SAAB (Sweden – Gripen). the DRDO has disclosed that they are seeking to build Indian capabilities in the manufacture of infrared seeker technology and imaging facilitated through working relationships with other countries • Air Force systems – The Air Force is currently going through a period of modernisation and has recently inducted mid-air refuellers. • Army systems – The Indian Army has plans to acquire handheld battlefield surveillance radars. Jaguars and Mirage aircrafts • Airborne Early Warning Aircraft • Additional Aerostats While the Air Force plans for expansion and replacement of the ageing MiG 21s are well underway. A major modernisation of the Su-30MKI aircraft is also planned including the installation of a more powerful radar and newer avionics.• Additional Advanced and Intermediate Jet Trainer aircrafts • The Fifth Generation Fighter. navigational radars with Low Probability of Intercept (LPI) capability. Further. respectively). but is increasingly seeking to diversify the vendor base. the value of which is unknown.
much later. the output of Indian firms would need to more than double each year. One of the major impediments is the necessity for No Cost No Commitment Trials which can take several years and consequently small players with sophisticated expertise do not have the resilience to survive this mammoth risk. customer clearance required for both Import and Export. In any market. this is highly unlikely to occur. which means it will often be able to offer more cost-competitive terms for large platform builds. 3. the modest ratio of defence expenditure to GDP and its mandate to 12 | CII Indian Defence Industry Mission EUROSATORY 2010 modernise its military. protection of intellectual property rights. however. Total indigenous production over the 2011-2015 period would need to expand from approximately USD 30 billion to more than USD 70 billion in the space of five years.75 billion of its capital expenditure budget. The current timelines for procurement. In some sectors. appear to be applied to acquisitions that are behind schedule or for where there is only one likely sole supplier (which tend to be large primes from other countries). domestic private firms will need to access specialist inputs to meet these uplift targets in the context of an acquisitions budget that is growing in absolute terms.2. which are described by the DPP to be 2-3 years but have been reported to take more than 4-5 years. If the Indian Defence Forces increase its indigenous procurement from the current 30 per cent to the target 70 per cent over the next five years. this can be seen as both a risk and an opportunity for foreign firms. The process can be extremely long and the basis on which tenders are eventually awarded is often not at all clear. One of the benefits that have recently been accorded is the abolition of controls on foreign remittances under Foreign Technology Collaboration Agreements under Press Note 8/2009. overall it was assessed that it was unlikely that budgeted outlays would come under pressure in the future due to fiscal capacity constraints. there are very strong incumbent positions such as the DPSUs - Hindustan Aeronautics Limited (aerospace) and Bharat Electronics Limited (elec- .Industrial licensing. taxation advantages afforded to DPSUs as compared to domestic Indian companies and offset requirements (ranging from 30% to 50% depending on DPP restrictions). Foreign firms are best able to compete where they have specialised knowledge or inputs. Competition Like many countries.2 Challenges and risks While the market size is large and growing. India confers on its domestic firms regulatory and taxation advantages that improve their cost-competitiveness compared to their international counterparts. such as in-country trials and the requirements to demonstrate how offset and Transfer of Technology obligations will be met. was the inability of domestic and foreign firms to keep up with the rate of growth. It also appears that the tendering process for defence equipment in India is not highly transparent. capability of Indian joint venture partners. India is also host to a mature manufacturing sector. Potential opportunities. The chief risk. there has also been a trend of significant underspending by the Indian Defence Service. and therefore have limited benefit to foreign exporters.where there are significant opportunities for firms with specialised knowledge looking to enter the Indian market. rather. such as Fast Track Procedures. too. market entry is not without challenges and risks for exporters. however. There is every prospect that foreign companies could spend a great deal of time and money working up a bid only to be advised. This is largely due to the often high costs of tendering processes. This would translate to an average growth rate of the local industry of 30 per cent a year over the next five years. The Indian Government is seeking to expand indigenous production. Consistent underspending Given its strong economic growth projections. Regulatory barriers and risks Currently there are a number of regulatory barriers to entry. Although budgets for capital expenditure on Defence Force Services have consistently been increasing. also make it difficult for small to medium enterprises to enter the market. including in the main foreign direct investment restrictions (26%). that they were unsuccessful for reasons that are not apparent. Over the period of 2003 to 2010 the defence service has underspent about USD 6. etc. particularly within the maritime and land domains. from 2003-2010: • the Navy underspent 21 per cent of allocated capital expenditure • the Army underspent 31 per cent of allocated capital expenditure • the Air Force underspent 47 per cent of allocated capital expenditure Importantly.
2. global exporters will face fierce competition from transnational corporations offering state of the art technology. If the Indian Defence Forces increase its indigenous procurement from the current 30 per cent to the target 70 per cent over the next five years. particularly with respect to market entry in India. By their very nature.tronics) that will provide strong competition to exporters seeking to enter the market. Competition in markets for defence equipment also does not take place on a level playing field. niche players are not threatening or overbearing and are more willing than the big transnational corporations to work closely with local industry. the output of Indian firms would need to more than double each year. This does not have to be financial support. Moreover. Other Countries will necessarily be a niche player here. They also tend to be more aware of the reciprocal benefits of working overseas and may be more willing to incorporate Indian firms into their supply chains. Yet in the context of India’s aspirations in terms of self-reliance. Yet the potential rewards for foreign companies are significant. While it is clear that India is seeking a high level of selfsufficiency in delivering its ambitious defence re-equipment and expansion program. is important. it is also evident that there will be a high level of reliance on overseas interests to supply the necessary technology in a number of areas. Prospects for Global Defence Export Industry in Indian Defence Market | 13 . The export countries which already dominate the global market can supply complete platforms or systems.3 Key opportunities for foreign suppliers The challenges involved in participation in the Indian defence market should not be under-estimated. often backing for the bid from the defence force in the exporting country can be influential in its own right. Government support. being a niche player may be no bad thing. 3.
The recently released economic survey for financial year 2009-10 reveals that some of the key macroeconomic fundamentals of the economy have revived over the past few months.exports (USD 81.1 Gems and Jewellery.0 Chemicals. The last fiscal and the first half of the current fiscal saw India dealing with the impact of the global slowdown that resulted in the GDP growth rate slowing down from an average of 9 % achieved in the last 5 years to 6. Aided by the fiscal stimulus package and a liberal monetary policy . 18. 3 eloitte’s Budget 2010: D Snapshots for the Aerospace and Defence Sector Figure 1: GDP shared. 19. a booming fiscal deficit and an alarming fall in the industrial production.6 Others.6 Gold & Silver. domestic private consumption have increased from last year level and the capital markets have remained strong and robust.5% 9.6% 2. 17. 79. when compared to the rest of the world. 65 Principal import 2007/08 (USD billion fiscal year Apr-May) Others.5% 8.0% 8.6% 7. 18. • By 2025 India’s economy is projected to be about 60% of the size of the US economy.2% Industrial production 2009-10 14% 12% 10% 8% 6% 4% 2% 0% 11.2 %.7% 7. Capital flows shrinked and the stock market tumbled into an abyss landing a blow to the “decoupling” hypothesis. 37.5% Growth in Real GDP 9.3 Electronic Goods. Figure 2: Export and Import Principal export 2007/08 (USD billion fiscal year Apr-May) Engineering Goods.7 Petroleum Products.The slowdown also resulted in plummeting exports. GDP growth rate and Industrial production Share of GDP Agriculture 17% Industry 21% GDP Growth rate of India 12 10 8 GDP (%) 6 4 2 0 Services 62% 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Source: The Economic Survey 2009-10 GDP Linear 7.9 Textile and Clothing. • India would emerge as the second largest economy in the world by the year 2050.6% IIP Growth (%) 20 03 -04 4-05 5-06 6-07 7-08 8-09 9-10 0 0 0 0 0 0 20 20 20 20 20 20 IIP (Y-o-Y) Source: Economic Survey • India is highly consumer driven with consumption forecasted to contribute 63% to GDP growth. the country’s GDP growth rate for FY 2009-10 is expected to be 7.6 Agriculture and Applied Products.7% 9.3 Source: Economist Intelligence Unit 14 | CII Indian Defence Industry Mission EUROSATORY 2010 . 40.8 Petroleum Products and Petroleum .2% 8.8 Capital Goods.1 Basis for requirements 4.In addition. The policymakers deserve for the well calibrated and synchronized policies that have helped restore the lost optimism in the future prospects of the economy3. industrial production has seen record levels (touching 11. 36. 19.India stood out as one of the better performers and continues to remain a primary focus for many businesses. 20.1 Overview of the Indian economy Per capita income of India has reached USD 1016 billion in the year 2008 (more than doubled in the last 7 years).7% in November 2009).2% 6.1. Despite these negative impacts.4% 8.4 Indian defence requirements 4. 24.7 %.14 billion as on September 2009) have regained the lost momentum.
Shimla. Delhi. Figure 5: Tier distribution of cities 8. Delhi and Mumbai has experienced rapid growth in their suburbs and the mushrooming of satellite towns. textile. Gurgaon. Amritsar. cement & steel. plastic. Kochi. Kanpur. Faizabad. Goa.2 Agriculture The classification based on population density is as follows • Tier 1 — Population > 4 million • Tier 2 — Population > 1 million • Tier 3 — Population > 500 thousand • Tier 4 — Population < 500 thousand Most multi-nationals operate in eight tier 1 cities as they accounted for 40% of disposable income.129 million and growing at 1. Bangalore. Chennai.5 (55+) 101. Jaipur.7%) and industry (8. Aligarh. Villupuram. Lucknow. higher than that of services (8. Pune Hyderbad. Rajkot (5-14) 239 (15-24) 199 Trichy. wood products and chemical industries.7 (35-44) 122 (25-34) 156.9% in FY 2009-10. Kolar Tier 1 — 8 Major Cities Tier 2 — 26 Mainstream Cities Source: NCAER Prospects for Global Defence Export Industry in Indian Defence Market | 15 Tier 3 — 33 Cities Tier 4 — 5094 Small Towns . Anand. 2009-10 Several other sectors have made a strong recovery - Auto. The purchasing power of Indian middle class is expected to attract global producers to find attractiveness in Indian markets. Population and Indian cities: Population is estimated at 1. Hassan. Agra. Moradabad. BFSI.9 8 6 4 2 0 -2 Services Manufacturing Industry -0. Kolkata. Labour being the most important resource in manufacturing sector can contribute great deal to the productivity and GDP of the country. Pondicherry. Bhavnagar. Nasik. Nagpur. Faridabad. Ahemdabad Surat.6 Mumbai. The industrialisation in India has turned towards small towns and they have become the key to increased productivity and enhanced standards of living. Madurai.2 Growth rate Source: Economic Survey of India.2%) Figure 3: Growth Rate of various sectors 10 8. Figure 4: Population (million) Vs age group (2001) (0-4) 106.Sector Performance: Recovery is evident! Manufacturing sector has grown at 8. The man power (labour ) available in India can be estimated through the graph below. Palghat. Tier 1 and Tier 2 cities together account for 44% of urban population and 53% of urban disposable income. Rourela.7 8. rubber. Kozhikode.7 (45-54) 85. Shillong.38%. Meerut. Jodhpur Rohtak.
expenditure of about USD 32.53% 13.29 % of the total Central Government expenditure. which roughly account for about 20 % of total Government budget.04 1.26 0.62 billion revised estimates for the last year.5 13.Table 2: Urban population and urban disposable income demographics 2001 Classification Tier 1 Tier 2 Tier 3 Tier 4 Urban population tier wise (million) 83. This will account for about 2. India is expected to be one of the largest buyers of defense equipment and services in the world. communications and electronics. monopoly and have developed and have passed off outdated technologies to the services.23% 5.04 17.75 75.85 26.31 25.69% 3. security aspects of the Department of space.1. On a positive note they have also succeeded in building fine warships and aircrafts albeit at substantial cost and time overruns.67 0.13 % and out of which capital acquisition of USD 13.99 135. If the scope of national defence is enlarged to national security.43% of GDP.01 0. Space. Civil Aviation etc. They have grown tremendously through protection.51 and Technology Scientific and Industrial 0.23 Urban disposable income as a % of total disposable income (USD Billion) 16.32 Capital Total 13.4 (see table 3) Figure 6: Expenditure on Defence by GOI Table 3 below provides a summary of the Government of India budget for defence.1.1. There are a few standalone ESO companies as well.19% Urban disposable income (USD Billion) 75.46 % from the last year (see figure 6).1 Impact of defense on Indian Economy In the Union Budget 2010-11.6 16.03 7.58% 16.03 billion has been earmarked for national defence which has been increased from USD 29.09% 4.59 0. The total defence budget accounts for about 13. The total defence budget has increased by 8..5 18.21% 2. 16 | 2010 -11 Revenue Capital (figures in USD Billion dollars) CII Indian Defence Industry Mission EUROSATORY 2010 .73 43.2 Growth in the Manufacturing Market The growth in defence production is a growth in manufacturing sector. Growth of Defence Public Sector Undertakings (DPSUs): The DPSUs in India have historically dominated Indian aerospace.99 6.64 1.04 billion has been increased by 25. The targeted defense expenditure till 2015 is 100 billion dollars. expenditure of the Ministry of Home Affairs. Home Affairs. 11.52 0. Growth of IT/Engineering Companies: Indian software companies are active in the field of avionics and are aggressively trying to increase their share of the engineering services outsourced (ESO) market. research and development.14% 4.63 0. Table 3: Government of India Budget — 2010–11 (1 USD=INR 46) (figures in USD billion) Ministries/ Departments Defence Home Affairs Space Civil Aviation Revenue 18.31 0.66 Department of Science 0.55 0.01 32. it would include expenses for civil defence.1. All big players have already set up a separate aerospace vertical.65 Research 4.09 0.99 2009 -10 4 eloitte’s Budget 2010: D Snapshots for the Aerospace and Defence Sector.7 Urban population tier wise as a % of total population 8. shipbuilding. The budgeted allocation keeps growing by 7-8% every year.
000 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 GDP (INR. pp.000 GDP (INR. pp. For example. 4.6 Reports of the growing strategic relationship between China and Pakistan (for example.2010 6 ired in Red Tape’ in M SP’s Land Forces Defence Magazine. primarily due to the ongoing United States military presence in Afghanistan.1 Indian defence strategic directions and priorities India’s overall military strategy is shaped by a range of ongoing and emerging issues in the region.000 60. liberalization and the offset policy. India has been increasingly moving towards a more open-market economy. slowdown in auto sector. and the ongoing Maoist Naxalian insurgency. D 2000) 80. This would include the ability to respond on dual fronts to Pakistani and Chinese incursions. Feb Mar 2010. real terms) GDP (INR. January.2 Defense acquisitions : Strategic imperatives and economic context 4. which India has frequently blamed for terrorist activities. process similarities. Therefore the penchant of several automotive players for A&D sector is a logical choice than other industries. Also the automotive industry was in the forefront in adoption of best practices particularly in manufacturing and supply chain processes. big houses like Tata.1.The primary drivers for entering this sector is risk diversification.5 Growth of Auto Component Manufacturers: Indian automotive companies have been the recent entrants in this sector primarily due to synergy of operations and business processes. and be connected via advanced networking and communication systems.000 100. This includes conventional threats and border disputes with China and Pakistan.1-6 & 13-14 7 atoch.Growth of Other Private Players: There are many SMEs who entered post liberalization . INR) 120.2 Rapidly expanding economic power India has seen its economy expand almost exponentially over the past two decades (Figure 7).32-33 Source: IMF (2009) World Economic Outlook Database (Last Release – October) Prospects for Global Defence Export Industry in Indian Defence Market | 17 . L&T.1. Number 1. nominal terms) GDP % change (real terms) India has been engaged in an ongoing dispute with Pakistan along the Line of Control (LoC) in Kashmir for decades. Key drivers for their growth are subcontracting for DPSUs. growing concerns about terrorism from non-state and state-sponsored groups. this encompasses threats from a range of non-state groups. In addition to direct confrontations. Lieutenant General K (Rtd) (2010) Restructure Capabilities’ in SP’s Land Forces.000 20. The resulting doctrine is focussed on eight integrated battlegroups of division size. 4.2. These issues are further complicated by the ongoing relationship between Pakistan and the United States. reducing historic controls on foreign trade and investment and privatising a range of government-owned companies. This has catalysed India to be one of the fastest 12% 10% 8% 6% 4% 2% 0% 1998 2000 2002 2004 2006 2008 2010 2012 2014 % change in GDP 5 eloitte A&D Presentation D for Belgium Economic Mission March 26. higher margins and offset opportunities. but maintaining the ability to engage in rapid retaliatory responses to any attacks. the Chinese proposal to establish foreign military bases in Pakistan) are also a cause for concern. which would combine mobile ground forces with air power.1. During this time.000 40. M&M and other domestic private players like Dynamatic Aerospace have been aggressively building capabilities in different spheres. Figure 7: Indian GDP – 1980-2014 (%.2. Vol 7. contributed by Brig Gurmeet Kanwal (Retd).7 Further development of this strategy remains focussed on avoiding a nuclear response.
1 Acquisition governance and planning Responsible agencies The Indian Ministry of Defence is responsible for all defencerelated activities in India.1. which would enjoy the same tax treatments as incumbent publicly owned firms (the Defence Public Sector Undertakings). welfare and pensions matters of Ex-Servicemen. The Defence Acquisition Council (DAC) was established in 2001 and is charged with the approval of capital acquisitions. The principal task of the Defence Ministry is to frame policy directions of the Government on all defence and security related matters for communication to the Services Headquarters and other relevant organisations. The increased focus on privatisation of government controlled firms and engagement with the private sector has also impacted on India’s defence sector. 4. In particular.1. Even today it is still estimated that around 50 per cent of the Indian Armed Forces’ existing equipment is obsolete. The DAC is the responsible authority for determining the category of proposed acquisitions under the DPP. with its GDP growing by seven per cent each year on average since 1995. • Establish self-reliance – The Indian Government also has aspirations to significantly enhance indigenous production capabilities (particularly in relation to advanced technologies).8 Accordingly.2. defence policy.3 Defence spending and acquisitions It is in the above military and economic contexts that India has moved over the past decade to implement a transformational capability upgrade across all defence service divisions. Report prepared by the Confederation of Indian Industry in partnership with KPMG . The Ministry of Defence is comprised of four Departments: • Department of Defence – responsible for the defence budget. In implementing the modernisation plans. The government is seeking to establish a new class of domestic private enterprise. Planning framework and procedures Planning for capital acquisitions is undertaken on a short. India’s ‘economic miracle’ has been underpinned by a significant expansion in its advanced manufacturing. India’s economic growth forecast to not only continue but accelerate. spanning the Army. medium and long-term basis. the private sector has only been provided one-year forward estimates. which works in a range of areas of indigenous military technology development • Department of Ex-Servicemen Welfare – deals with resettlement.3. historically. the Ministry of Defence is seeking to: • Correct legacy underspending – Following the Bofors acquisition scandal in 1986. defence co-operation with foreign countries and co-ordination of all defence related activities • Department of Defence Production – responsible for matters pertaining to defence production and indigenisation of imports • Department of Research and Development – responsible for advising the Government on scientific aspects of military equipment and logistics. Navy and Air Force. which have typically involved foreign supply of critical components.3 Defense expenditure: Historical trends. This would represent a shift from historical patterns of defence procurement. with some licensed indigenous production. India’s expenditure on defence was reduced. which contributed to a decade of underspending that became apparent in 1999 during the Kargil conflict. future plans & fiscal capacity 4. the Raksha Udyog Ratnas (RURs). and is assisted in this role by: • Service Headquarters (SHQ) • Service Capital Acquisition Plan Higher Committee (SCAPCHC). It has also agreed to provide greater detail to the private sector about future defence acquisition plans. 4. engineering and ICT industries. modernisation is a key priority for future defence acquisitions.growing emerging markets. The Kargil conflict highlighted a range of deficiencies in the capabilities of the Indian Armed Forces. Moreover. Supporting this objective. the Ministry of Defence has implemented a series of changes to the governance and planning processes for defence acquisitions to improve the transparency of long term defence acquisition plans to the private sector. establishment matters. by way of the following documents: 8 pportunities in the O Indian Defence Sector.1. The Defence Research and Development Organisation (DRDO). • Improve value for money – Revisions to procurement 18 | CII Indian Defence Industry Mission EUROSATORY 2010 procedures have been focused on increasing the number of vendors from which India sources its capabilities. The MoD also has a Finance Division which is fully integrated with the Ministry & performs an advisory role.5 per cent on average from 2010 to 2014 (Figure 7). and in keeping with broader moves to open up the Indian economy. India is looking to other countries for acquisitions as so far traditionally India has been relying on Russian equipments. The IMF projected in October 2009 that India’s real GDP growth rate would exceed 7. matters relating to Parliament.
Under one of the key amendments to the DPP-2008. including: capital outlay on machinery. In November 2009.772 crore or USD 38. The Revised Estimates Budget is calculated at the end of the year and captures the actual revenue and capital expenditure spent during the financial year. investment in public enterprises. stores purchases (revenue) and transportation and miscellaneous expenditure (revenue). The planning process is under the overall guidance of the DAC. the coast guard. Table 4 below gives general terms and their definitions. Plan Expenditure is expenditure requirements identified and discussed by respective ministers or departments and discussed with the Ministry of Finance. hardware and services provision • Implementing policies and procedures to increase the quality. the DPP-2008 (Amendment 2009) was released. armaments. pay and allowances for the armed force personnel (revenue). It comprises 34% of the total Central Government budget. loans to private enterprises. other works expenditure (revenue). which will account for about 2. This amendment is designed to assist the private sector in more effectively undertaking planning (including R&D and collaboration) for tender proposals. the LTIPP will be made publicly available for the first time in June 2010. p 12. and defence pensions. The AAP is a subset of the SCAP.21 billion.53% of GDP.3. 4. and other equipment required by the defence services. construction and land (capital expenditure). I Table 4: Expenditure definitions Expenditure type Budget Revised Estimates Budget Plan Expenditure Definition The budget for the defence force is prepared prior to each financial year and estimates the capital and revenue expenditure that will occur in that year. comprising the following key reforms: • Supporting the development of indigenous Defence industry through the introduction of new category for acquisition — ‘Buy and Make (Indian)’ • Encouraging competition by broadening the vendor base. 9 t an exchange rate of 46 A INR to 1 USD 10 ne crore is a Hindi measO urement equivalent to 10 million. public works. in spite of its name. including through increased domestic private sector involvement and continued foreign firm equipment. Prospects for Global Defence Export Industry in Indian Defence Market | 19 General budget terms Non-Plan Expenditure Defence-specific categories of spending Capital Expenditure Revenue Expenditure Defence - Services Expenditure Defence - Civil Expenditure . and procure land. The Defence Procurement Procedures 2008 (DPP-2008) is a policy document providing formalised guidelines for capital acquisitions. 10 Defence force expenditure is split into ‘Revenue’ and ‘Capital’ expenditure. tax collection and social services. canteen stores department. It includes: secretarial and general services. Salary and wages for the Defence Force Personnel accounts for about half of this budget. 12 bid. Union Territories. local governments and foreign government. most of the budget prepared by the Planning Commission is categorised as non-Plan (66% of total budget). Vol 1.2 Defence Expenditure: key definitions and areas of focus The 2010 budget for defence spending in India is INR 175. The DAC is responsible for approving the LTIPP and SCAP. Indian Government Plan Expenditure includes health and education. 11 xpenditure Budget 2010E 2011. *The Indian Defence Force’s Expenditure budget is predominantly Non-Plan expenditure.• Annual Acquisition Plan (AAP) • 5-year Services Capital Acquisition Plan (SCAP) • 15-year Long Term Integrated Perspective Plan (LTIPP). reflecting India’s strong desire to increase engagement with the private sector.11 Non-Plan Expenditure is all expenditure that was not identified in the plan expenditure. and is subject to the approval of the Defence Procurement Board (DPB). housing. The Capital Expenditure Budget is primarily used by the Defence Force to construct infrastructure. The Revenue Expenditure Budget is used for the everyday operating expenses of the Defence Force. Defence Civil expenditure is spending that is considered to be auxiliary to the defence services. Defence Services expenditure is comprised of direct defence spending.12 This expenditure includes salaries for government employees. reliability and transparency of procurement processes • Enhancing the delegation of financial powers to the Services.1. 9. States.
04b (34.0% 2003 2005 2007 2009 2011 Defence Revenue / GDP Defence Capital / GDP Total Defence / GDP Figure 8 : Expenditure breakdown Service Expenditure (USD.4. such as a change in accounting methods.in. Revenue and Capital expenditures) in India in the period from 2003 to 2010 has been increasing by a nominal Compound Average Growth Rate (CAGR) of about 11.5% 1. however. Budgeted capital expenditure on Defence Services has increased from USD 5 billion in 2003 to a budget of USD 14 billion in 2011.49%) Total Expenditure (USD.30 (33. billions) Reflecting the high proportion of the overall capital expenditure budget.7 per cent per year. Available at: www.1 per cent for revenue expenditure. which has achieved a nominal CAGR of about 13. 13 Trends in defence acquisition spending Total budgeted defence spending (including Services and Civil. indiabudget.5% 0. accessed on 23th March 2010. 14 nion Budget(s) & U Economic Survey 20032011.in. capital expenditure on Defence Services has also increased by a CAGR of 13. accessed on 23th March 2010. it seems unlikely that all expenditure occurred as planned during this one period. it does signal that defence spending has been falling as a percentage of GDP. Considering the prior and following year differences.nic.0% 0. Available at: www. billions) Total Expenditure (USD. 18 n nominal currency I amounts.8 per cent. billions) $32. Figure 10 shows the historical difference between the budget and the revised $18. compared to a CAGR of 9. billions) $13. In 2009-2010.8 per cent (in line with overall capital expenditure trends). billions) Capital Expenditure Budget (USD. there has also been a trend of significant underspending by the Indian Defence Service.68%) Revenue Expenditure Budget (USD.13%) $0. Total budgeted defence spending (including Services and Civil. Defence Services capital expenditure will account for approximately one third of India’s total spending on defence (Figure 8). Consistent underspending Although budgets for capital expenditure on Defence Services have consistently been increasing.16 Figure 9: Defence Expenditure as % of GDP – Budgeted Expenditure 2.26b (0. billions) Civil Expenditure (USD.nic.18 (16. Available at: www. have been falling as a proportion of GDP.8%) Total Capital Expenditure $24. indiabudget.3 Historical defence spending 13 nion Budget(s) & U Economic Survey 20032011. 15 bid I 16 Ibid 17 here was no change in T 2005 between the budgets for revenue and capital expenditure.indiabudget.70%) $5.nic.14 While this is a high rate of growth. Revenue and Capital expenditures) in India in the period from 2003 to 2010 has been increasing by a nominal Compound Average Growth Rate (CAGR) of about 11.3.03 (83.8 per cent for the same period (8 per cent in real terms).2%) Total Revenue Expenditure $38. 15 Not all areas of defence budgeted expenditure. This aberration in the data could have several causes.5% 2.0% 1.7 per cent per year.92b (15.17)% Total Civil Expenditure 20 | CII Indian Defence Industry Mission EUROSATORY 2010 .83%) Total Services Expenditure $6. accessed on 23th March 2010. the primary focus is on capital expenditure in Defence Services. Deloitte Analysis $13.91 (66.1. Budgeted capital expenditure across both Defence Services and Civil Expenditure categories has been keeping in line with GDP with a CAGR of about 13.99b (49.in.21 billion (100%) Total Defence Expenditure Source: Union Budget(s) & Economic Survey 2003-2011. For the purposes of this analysis.
Deloitte Analysis Prospects for Global Defence Export Industry in Indian Defence Market | 21 .in. Available at: www.000 -2.000 2. accessed on 23th March 2010.135 crore or USD 6.indiabudget. 17 Over the period of 2003 to 2010 the defence service has underspent about Rs 31.000 USD Billions 1.000 Source: Union Budget(s) & Economic Survey 2003-2011.000 Underspending relative to budget % Overspend % Underspend 30% 20% 10% 0% -10% -20% -30% -40% 2003 2004 2005 2006 2007 2008 2009 2010 Defence Revenue Defence Capital Total Defence Overspending relative to budget 2003 2004 2005 2006 2007 2008 2009 2010 -4.000 0 -1.nic.estimates budget. This is about equivalent to 57 per cent of the 2011 budget for capital expenditure.000 -3.75 billion18 of its capital expenditure budget. Figure 10: Unspent funds – Total Defence Budget (in both % and USD terms) Unspent funds as % of Budgeted Expenditure 40% Unspent funds in USD 3. It highlights the defence service consistently underspends their monies allocated to capital expenditure.
0 $6.40% 0.Trends in acquisitions by each Defence Force division The Indian Defence Force includes the Army.0 $8.0 Expenditure by Service Division $14.4% CAGR (2003-2011) 13.8% 21.35% 0.8 per cent.5% 13. Available at: www.nic.25% 0.in.10% 0.20% 0. has remained relatively constant as a proportion of GDP since 2003. Deloitte Analysis 22 | CII Indian Defence Industry Mission EUROSATORY 2010 . of about 50 per cent from 2004.0 $0.nic.8% 7. Available at: www.1% 6. Each Service undertakes their own systems procurement which falls under ‘other equipment’ within the defence budgets.30% USD Billions 2003 2004 2005 2006 2007 2008 2009 2010 2011 Army Navy Airforce 0.15% 0.00% $2. Navy and Air Force.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Union Budget(s) & Economic Survey 2003-2011. Table 5: Expenditure by Service division (in both % and USD terms) Proportion of total capital expenditure (2003-2011) Air Force -aircraft and aero-engine Army –systems Air Force –systems Navy –naval fleet Research and Development 26.in.05% 0. Budgeted capital expenditure for the three services. The 2005 financial year was the ‘abnormal’ year where all spending targets were met within the defence force. The spike in budgeted expenditure for the Air Force in 2005 is due to doubling in expenditure on ‘aircraft and aeroengines’.indiabudget. shown in Figure 11.7% 18. accessed on 23th March 2010.0 $12.6% Source: Union Budget(s) & Economic Survey 2003-2011.0 $10.3% 10. accessed on 23th March 2010.6% 14.0 $4.4% 21. Deloitte Analysis Table 5 identifies some of the areas within the defence service that have been receiving large proportions of the service’s capital expenditure allocation or have been growing at a rate greater than that of the capital expenditure budget which has a CAGR of 13. Figure 11 : Expenditure by Service division (in both % and USD ($) terms) Expenditure by Division as % GDP 0. and an increase in expenditure on ‘other equipment’. which related to systems acquisitions.45% 0.indiabudget.
although recent indigenous production delays have also resulted in a significant underspend by the Army as well. the Indian Standing Committee on Defence reviewed the defence force procurement policy and procedures.Underspending by Service Division Excluding the 2005 year. however.00% 10. accessed on 23th March 2010.00% -10.19 This report identified that although India had been independent for 55 years. Prospects for Global Defence Export Industry in Indian Defence Market | 23 . The consistent underspending by all three divisions may indicate that procurement issues regularly arise within the whole defence service as opposed to within just one division (Figure 12).000 Underspending relative to budget USD Millions 800 600 400 200 0 -200 2003 2004 2005 2006 2007 2008 2009 2010 Source: Union Budget(s) & Economic Survey 2003-2011. all divisions of the defence service were consistent in their underspending of budgeted capital expenditure. Standing Committee on Defence (2005-06) Sixth Report.200 1.in.nic. when the sector was opened to private industry.00% 35.00% 5. Production of defence equipment was a purely government function up until 2001.400 1.indiabudget.00% 20. cutting edge military technologies had not been locally developed and the procurement of capital equipment remained reliant on imports.00% -5. Figure 12: Unspent funds – Service Division Capital Budgets (in both % and USD terms) Unspent Funds as % of Budgeted Expentiture 40.00% 2003 2004 2005 2006 2007 2008 2009 2010 Army Navy Airforce USD underspent by Service 1.00% 0. Available at: www.00% 25. Deloitte Analysis 19 rocurement Policy and P Procedure. The Air Force has been the most consistent area of underspend relative to budget.00% 30. Trends in indigenous versus imported acquisitions In 2005.00% 15.
• Understanding of the Defence Domain requirements 20 inger. These policy changes were intended to open the way for the private sector to become more involved in the production of advanced weapons systems and equipment. the production activities of the DPSUs in relation to complex systems have typically been by way of licensed production based on foreigndeveloped technology. Further. the performance of the DRDO has been subject to a range of criticism. mines and explosives. In addition to major industrial companies such as Tata Advanced Systems and Mahindra. and as such. The DPSUs produce combat aircraft. aircraft and shipbuilding industries. a number of new public sector ordnance factories were built. Currently. organisations wishing to enter into the defence industry face significant infrastructure and production facility costs. ammunition. armoured vehicles and trucks in addition to the previous products. components and spare parts until 2001. including defence. there are 40 state-run ordinance factories which focus primarily on land-based systems and operate under the guidance of the Ordnance Factories Board. investments in productive capacity. Cornell University Press. noting that the private defence sector is still ‘embryonic’ and that it will take time to ‘come of age’. complex weapon systems account for a majority of a defence force’s capital expenditure. India’s productive capabilities were limited to small –run arms. Standing Committee on Defence (2005-06) Sixth Report.20 Complex weapons systems are differentiated from other defence weapon systems by the technical difficulties that occur at the conception. 22 ibid 24 | fighters. warships. Although relatively simple systems such as mines and rifles account for the bulk of fatalities in current conflicts. Industrial policy meant that the private sector was limited to producing elementary and intermediate products. entry into many parts of the defence industry requires significant investment into R&D before. 21 rocurement Policy and P Procedure. with complete private ownership of defence production and up to 26 foreign direct investment permissible. Developing indigenous defence capabilities was seen as a key means of maintaining foreign policy independence. all of which were undertaken by 16 ordnance factories. At that time. The DPSUs have been the recipients of significant support from the Government in terms of research and development assistance (particularly through the work of the Defence Research and Development Organisation). February. W.Box 1: Overview of India’s indigenous defence production Achieving self-reliance in defence production has been a goal of Indian policy-makers since the attainment of independence in 1947. Complex weapon systems range from CII Indian Defence Industry Mission EUROSATORY 2010 . Source: (2010) ‘Chapter Ten: Reforming India’s Defence Industries’ in The Military Balance. And in addition to long term commitments to R&D. defence electronics. However. In the following decades. helicopters. complex weapon systems often require the integration of many systems. P. pp. when the defence sector was opened to private sector. tax breaks and prioritisation for tenders. each of which may be produced by a different supplier.473-478 The private defence industry in India is still relatively young with the Ministry of Defence. frigates and tanks to the electronic systems that support them and even many of the munitions carried by these vehicles. in addition to uncertain outcomes which increase the risk to the buyer and seller of a complex weapon system. during and after a complex weapon system has entered production. the private defence industry will have a number of barriers to overcome before it reaches maturity. development and production stages. The Industrial Policy Resolution of 1948 decreed that the public sector would be the main source of production in a range of areas. heavy earth moving equipments and specialist alloys.21 Under these constraints. In addition to the ordnance factories. missiles. (2003) S Corporate Warriors: The Rise of the Privatized Military Industry. Adding to the complexity of creating these systems. Ithaca and London. including: • Prohibitive industry entry costs • Barriers to the export of defence intellectual property from foreign countries • Integration difficulties when combining complex weapon systems. These barriers to the growth of the defence industry are predominantly for the sectors that produce equipment that may be considered to fall under the title of ‘complex weapon systems’. there are eight Defence Public Sector Undertakings (DPSUs) controlled directly by the Ministry of Defence. there are also a large number of small and medium-sized businesses that assist the DPSUs and private companies with the provision of components. so that by the mid 1980s there were 35 factories manufacturing tanks. Policy revisions in 1956 explicitly excluded the private sector from taking part in the munitions.
In practice.22 India will necessarily need to develop the capability of their defence industry prior to making serious advances in proportion of capital equipment that is manufactured locally. naval production is currently focused on heavy engineering rather that the complex electronic systems design and integration. governments which fund the invention and development of these systems have an interest in restraining the transfer of cutting edge weapon systems to other countries and therefore create export barriers or denial regimes for some systems.The issues surrounding complex weapons systems are compounded by the fact that the effectiveness of a weapon system is relative to other like or adversarial systems. Most countries implement similar denial regimes to protect their technological competitive advantage in weapon systems. 19% 26% 30% 24% 38% 89% 58% 73% 45% Imports 54% 52% 62% 62% 54% 5% 23% 46% 45% Total Indig. 46% 48% 8% 38% 46% 95% 77% 54% 52% Source: Procurement Policy and Procedure. where large platform builds have required less advanced technological know-how and India’s mature manufacturing and engineering sector is able to strongly compete. India still procured most of its defence force equipment from international suppliers (Table 6). The USA therefore restricts knowledge that is used in the production of their complex weapons systems. ITARS regulations dictate that technology and information used by or for the military cannot be shared with any non-US individual unless proper authorisation has been provided. 64% 51% 50% 42% 42% 95% 77% 54% 59% Imports 46% 34% 65% 52% 42% 22% 42% 34% 42% Army Indig. This is likely to be particularly true for items that require high levels of technological sophistication. Table 6: Imported vs indigenous production Year Imports 2000-01 2001-02 2002-03 2003-04 2004-05 2006-07 2007-08 2008-09 Average 36% 49% 50% 58% 58% 5% 23% 46% 41% Navy Indig. It has had the greatest success in naval and land acquisitions. Up until 2005. 54% 66% 35% 48% 58% 78% 58% 66% 58% 81% 74% 70% 76% 62% 11% 42% 27% 55% Air Force Imports Indig. One example of an exporting barrier is the USA’s International Traffic in Arms Regulations (ITARS). ITARS is a set of regulations that controls defence-related equipment and services which are on the United States Munitions List. Even in recent times India has struggled to lift indigenous production above 50 per cent of the total cost of the acquisition. For this reason. Standing Committee on Defence (2005-06) Sixth Report and Standing Committee on Defence (2009-10) Sixth Report. Prospects for Global Defence Export Industry in Indian Defence Market | 25 . the high barriers to entry will probably mean that the Indian Defence force will still need to procure much of its desired equipment from outside of the countries. While the private defence industry may be growing in India. For example.
0 per cent in 2010.4. Moreover.1 Future defence spending Table 7 presents Indian Government forecasts for future defence service expenditure. considering the degree of underspend and in turn the level of activity that is yet to occur for which budgets have already been allocated.3 per cent in 2011 and subsequently stabilising in the long run at around 4. which is expected to peak this year around 9. the Navy has a slightly higher target of 85 per cent but this is likely to be offset by lower levels of indigenisation in other domains. capital defence procurement that originates in India fell to about 30 per cent. However. before falling to 7. The above Table shows that the Defence Service’s capital expenditure budget is expected to grow in nominal terms. Union Budget(s) & Economic Survey 2003-2011. and Deloitte Analysis of allocations by Service Division.3 per cent from 2012 to 2015. with capital expenditure achieving a 10 per cent CAGR. this may be a more realistic growth rate of the Indian defence budget. Table 7: Forecast expenditure on defence services Year Capital Expenditure (USD million) Army (53 %) Navy (16 %) Air Force (34 %) 2011 13110 6948 2098 4064 2012 14421 7643 2307 4471 2013 15863 8407 2538 4918 2014 17450 9249 2792 5410 2015 19195 10173 3071 5950 Source: Indian Thirteenth Finance Commission Report. When accounting for India’s inflation rate in the near future. 26 | CII Indian Defence Industry Mission EUROSATORY 2010 In very recent times India has struggled to lift the indigenous share of its budgeted acquisitions. Dec 2009.7 per cent by 2015. The future balance of indigenous vs imported procurement: defence policy objectives India has established a notional target for 70 per cent of new acquisitions in the future to be sourced from indigenous production. This may mean that competition for new opportunities is higher than the nominal figures suggest.2. the real growth in Defence Service capital expenditure growth will be marginal over the next two years before increasing to about 5.2 Defence requirements 4.8 per cent from 20032010). it is important to consider the real growth rate of expenditure when evaluating forward projections. in 2010.23 If the Indian Defence Service wished for their indigenous industry to supply 70 per . This would represent an effective reversal of historic trends. This represents a marginal slow down in budgeted expenditure from the past decade (CAGR of budgeted expenditure of 13.
20% 0. the strong economic growth projected by India would be expected to build confidence in India’s capacity to commit to its budgeted outlays for defence.940 2417.00% 86. In general.84% 2015 13. Deloitte analysis – nominal projections.cent of the armed forces capital goods by 2015. it also outpaces its emerging market peers: Brazil’s public debt as a percentage of GDP is 47%. This contrasts with India’s developed nation counterparts.863 29.92% 2012 13.895 1876. overall expenditure is expected to remain a modest proportion of GDP (and steady component of government budgets).94% 1.50% 127. 23 ilitary Balance (2010).07% 0.89% 2013 13.12% 1. Indian Thirteenth Finance Commission Report. Dec 2009. pp 437-478 24 ndian Thirteenth Finance I CommissionReport. including revenue expenditure and capital expenditure within this. 110(1). Dec 2009.3 1. As a consequence. Critically.30% -9. India’s public debt as a proportion of GDP is currently high by world standards (Figure 13).052 2744. with the majority of Defence Expenditure categorised as Non-Plan expenditure.2. M ‘Chapter Ten: Reforming India’s defence industries’.16% -4. if targets are met Year Capital Expenditure (USD million) Indigenous growth rate Imported growth rate 2011 13. is forecast to decline as a proportion of GDP over the next five years to 2015 (Table 9).4 1.19% 2013 15.421 33.450 26. and exceeds the world average of 53 per cent.50% 98. This is highly unlikely to occur. China’s public debt as a percentage of GDP is 18% and Russia’s is only 7%.13% -6.76% 0. 4.14% 0. It would be very difficult for the Indian indigenous defence industry to achieve the growth rate above without significant government intervention.2 Fiscal capacity considerations Indian GDP has achieved a very high growth rate in the past ten years. although the Indian Government has budgeted substantial increase in nominal capital expenditure (and more modest growth in real terms to 2015).5 2.195 24. due to the combination of the aspirational growth rates for total spend and the proportion of defence equipment that is manufactured within India today.85% 1.33% -2.57% 2012 14. there is a potential risk that expected growth in Plan Expenditure could put pressure on proposed acquisitions. To the extent that a ‘double dip’ recession were to occur.625 2130.110 39.87% 2014 13.16% Source: Indian Thirteenth Finance Commission Report. However. Table 8 : Forecast Growth of Imported vs indigenous production. As shown in the table.50% 76.898 1660. which are expected to achieve much slower GDP and revenue receipts growth. In addition. Table 8 highlights the growth rate required for the indigenous defence industry to provide 70 per cent of the capital goods to the defence service by 2015. Country Monitor — India. Dec 2009. Defence Expenditure. India ranks 31st in terms of the proportion of debt to GDP. This pressure could be exacerbated in the event of a ‘double dip’ recession.01% 0. India’s Prospects for Global Defence Export Industry in Indian Defence Market | 27 .13% 2015 19.81% Source: Economics Intelligence Unit.95% 0. then the local industry would need to more than double in size in five years. indigenous production would need to expand by an average of 30 per cent a year over the next five years. which could be more protracted given the current debt positions of governments following the Global Financial Crisis (GFC).50% 111.1 1.5 2. 24 Table 9: Forecast Expenditure on Defence Services Year Forecast GDP Nominal Growth Rate Forecast GDP Nominal (INR billion) Forecast GDP Nominal (USD billion) Total Def Expenditure as % of GDP Def Rev Expenditure as % of GDP Def Cap Expenditure as % of GDP 2011 12.30% 2014 17.03% 1.19% -13. combined with harder spending choices driven predominantly by ageing populations.
In contrast to China. It is likely that pressure would first be focused on reigning in the defence force’s revenue expenditure growth. its deficit was reported to be 6. India enjoys a strong domestic demand component. Even in the event that Plan Expenditure grows in the near future.cia. 2009 estimates.html?countryName=India&count ryCode=in®ionCode=sas&rank=31#in debt position would be expected to potentially weaken its ability to commit to its proposed acquisition plans. posting the second highest real growth rate globally. however. the government would continue to expand Defence Service capital expenditure in line with their desire to modernise the defence force. is the more balanced nature of its growth. Offsetting its high debt position.Figure 13: Public Debt to GDP – Key country comparisons (2009 estimates) 200% 180% 160% 140% Debt% of GDP 120% 100% 80% 60% 40% 20% 0% New Zealand Saudi Arabia Australia China Greece France Germany Thailand Iceland Canada Ireland Sweden United Kingdom South Africa 36 Singapore Norway World United States Russia Japan Spain Brazil Israel India Italy 18% 7% 60% 53% 47% Source: CIA World Factbook. it is generally considered that. which relies heavily on exports for its economic growth. This suggests that although India’s fiscal position is not ‘bullet proof’ there are overall low risks to its capacity to commit to future spending.8% of GDP.gov/library/publications/the-world-factbook/rankorder/2186rank. given the security environment in and around India with boarder disputes with Pakistan and China. In 2009-10. As a result India weathered the GFC well.25 28 | CII Indian Defence Industry Mission EUROSATORY 2010 . accessed online at: https://www.
26.17 billion USD 2.3 Future acquisition plans 4.25 billion USD 1. 26 6 6 6 6 6 Prospects for Global Defence Export Industry in Indian Defence Market | 29 . By 2022. 30 14. 26. 19.2. 18. 30 12. 26 b- USD 9 billion +) USD 450 million > USD 1. Table 10 : Indian defence acquisition plans in the Navy domain Category Indicative Items (Quantity) Diesel Submarines (6) Submarines ATVs (nuclear subs) (3-5) Indigenous Aircraft Carriers (2) ASW Corvettes (8) Off-shore Patrol Vessels (4) Sail Training Ship (1) Warships Survey vessels (6) Destroyers (4) Frigates (7) Mid-Life Upgrades of the Kirch Class Corvettes (5) Landing Platform Dock (2) Mid-Life Upgrades of the Brahmaputra Frigates (3) Fighters for IAC2 MiG-29K (29) Alternatives for six Naval Tejas Navalised aircraft Long Range Maritime Patrol Aircraft - Boeing P8-I (20) Long Range Maritime Patrol Aircraft – IL-38 (5) Medium-range Maritime Reconnaissance Aircraft (6) Short-range Maritime Reconnaissance Aircraft (11) Advanced Light Helicopters (47) Helicopters Maritime Helicopters (16) Training aircraft – 17 Advanced Jet Trainers(17) Weapons – Missiles Weapons – other Equipment Marine engineering equipment Marine engineering equipment – propulsion systems SSK/EKM Submarine Equipment 2010-2022 2010-2022 2010-2022 2010-2022 2010-2022 2010-2022 2015+ 2010-2015 2010-2015 2010-2022 2007 (project has been delayed) 2010-2022 2010-2022 2010-2022 2010-2022 US$1 billion USD1 billion USD 2. Institute for Defence Studies & Analysis. 13. 26 25. 20. Two aircraft carriers are also currently in varied stages of construction alongside eight Boeing P8-I Maritime Multi-Mission Aircraft and 16 Mig-29Ks which are under production in Russia.8 billion 17.7billion) Source 4. 23.2. 25. 25.1 Navy Acquisitions The Indian Government has publicly recognised that India’s expanding maritime responsibilities and interests necessitate enhancement in naval and coast guard force levels.33 billion USD 8 billion USD USD 3. 26 25. 29 24. 25. 21.07 billion Timing Tenders released 2010-2011 2010-2015 From 2010-2015 2010-2017 2010-2020 Over 15 years Over 15 years Over 15 years Over 15 years Over 15 years 2010-2022 USD 3. 25.3. 25. 26 25. 31 1. 26. 25. 2. 27 25. 25. 25. 26. 26 10. 26. 26. including three aircraft carriers.26 22. the Navy has further plans to acquire: 25 Arvind Kadyan. 26 >USD 1. While the smallest of the three Indian Defence Force Services. 60 major combatants (including submarines). 26. 30. 26. 30 25. 30 12. and close to 400 aircraft of different types. 15.42b each (USD 20. India’s Defence Budget (20102011): Wakeup call for defence managers. 28. 30 25. 25.8 b (USD 5.4. the Indian Navy has plans to have a 160-plus ship Navy. 30 5. 26. The Indian Coast Guard is all set to double its force levels and manpower in the next few years and triple it in the next decade in order to protect the country’s maritime zones and assets. 11. 25. 26 25 25 25 12. the Indian Navy is already a rapidly expanding maritime force with 36 ships and six Scorpène submarines currently on order. In addition to the construction already underway.4 9. 30 16.
4.99 billion USD 0. 2 1. 5 5 1. 10. 13 USD 4. spanning 2007-2012. 3.000) 155mm ammunition – all types (150. 11 1. 9. 10 1. at a minimum rate of 100 units per annum. Table 11: Indian defence acquisition plans in the land domain Category Indicative Items (Quantity) Main battle tanks (1500) Infantry fighting vehicles Tanks and Vehicles Light strike vehicles and Bullet proof vehicles Mine protected vehicles (600) Unarmed/unmanned aerial vehicles (200) Unmanned combat air vehicles Field Artillery Rationalisation Plan 155mm self-propelled guns (400) 155 mm medium guns Air Mobile Ultra light howitzers (ULH) (140) Towed and wheeled guns Artillery Self-propelled tracked guns - 155mm/52 calibre guns Self-propelled wheeled 155mm/52 calibre guns with armour protection (mounted on a sixwheeled vehicle ) Towed 155 mm Gun-howitzers (400) Mounted gun system (200) 155mm precision guided munitions (50.3. 13 1. 5 3.57 billion 1. The program aims to induct around 2.77 billion to 5 USD 6. with DRDO production planned for 2020-2025 Ongoing DRDO trials are ongoing DRDO trials are ongoing Up to 2020 Up to 2020 2010-2020 2007-ongoing 2007-2012 2007-2012 USD Source 1.89 billion 2010 2010 2009-2012 Ongoing USD 522 million USD 270 million USD 393.44 billion. originally formulated in 1999. 8 1. with state of the art communications equipment and coordinated air support. Many acquisitions outlined appear to be part of the USD 8 billion artillery modernisation program.3 million 2 2 1 1 1. missiles and other items such as infantry upgrades. In its 11th Defence Plan. tanks and vehicles. 2 1. The intention is to create eight divisional-sized armoured battlegroups. amounting to around USD 1. 4 2010 USD 1. 2 5 USD 1. comprising artillery.2 Land Acquisitions Indian Army acquisition plans include upgrades and purchases of artillery.2. 16 Bullet proof jackets (59. 2 1. 7.35 billion Cost of USD 792 million USD 0. the Indian Army has designed around 600 modernisation schemes. 2.000) CII Indian Defence Industry Mission EUROSATORY 2010 .184 guns over 20 years. 5 5 2. 15. the FARP.4. 2. 2. The Indian army has further plans for acquisition.000 rounds) Tracked medium range surface to air missile systems (100) Replacement of air defence systems Missiles ZU-23-2 anti-aircraft upgrade (468) 40 mm Anti- aircraft Gun (115) Hand-held anti-tank guided missiles (5000) ICV-mounted anti -tank guided missiles (1000) Other 30 | Timing 2010-2015 DRDO production plans are for 2020-2025 Ongoing. armour and motorised infantry. 12 1. 2. 5 2007-2012 2.9 billion 1.
29 26.14 Fifth Generation Fighter Aircraft (FGFA) ( number) Medium lift Helicopters (80) Combat and Heavy Lift helicopters (22 +15) Helicopters VVIP helicopters (12) Dhruv helicopters (245) Cheetal Helicopters (10) Observation Helicopter (187) Multi-Role Tanker Transport (6) AN-32 Upgrade (105) Transport and Other Aircraft C 130J Hercules aircraft (6) Strategic Transports/Advanced Airlifters Hawk Mk 132 Advanced Jet Trainer (66) Basic trainer aircraft (181) Embraer Jets (3) Missile Systems UAVs Other Short Range Surface to Air Missile System (SRSAM) Medium Range Surface to Air Missile Systems (MRSAM) Israeli Harop ‘killer’ UAVs (10) Airfields for infrastructure upgrade (30) 2017 2013 2013 Deliveries ongoing Deliveries Ongoing 2017 Upgrade underway.12 Medium Multi Role Combat Aircraft (MMRCA) (126 with an option for 64-74 more) LCA (Tejas) (120) 2013-2014 13.8 million USD 869.09 billion USD 434.46 billion USD 9. 9.187 billion USD 1.4 million USD 2. the Airforce has planned for major acquisitions. 24 17 17.10 USD 8. 33 17. 19 20 7 21 7 26. 22.8 billion USD 232 million USD 2.593 billion Source 1. 17 17 17. 23 32 7.9 billion USD 1. 25 7.7 million+ USD 1.2.52 billion USD 220.127.116.11 billion Estimates of up to USD 9.6 7.3.17 billion USD 1.9 billion USD 5. 16.4 5. However due to urgent requirement of new technology.98 billion USD 810 million USD 397.8 Original agreement 7. 31 28 Prospects for Global Defence Export Industry in Indian Defence Market | 31 . 27 30. high demand from the Indian Airforce and limited indigeneous capacity.99 billion USD 2.44 billion USD 110 million 11.4. 34 18. Table 12: Indian defence acquisition plans in the aerospace domain Category Indicative Items (Quantity) MiG-29 Upgrade (63) Mirage 2000 Upgrade (51) Su-30 MKI 80 (40+40) Su-30 MKI (140) Fighter Aircraft 2008 onwards 2015 Timing 2013 USD USD 0.3 Aerospace acquisitions Aerospace continues to be a sector where India struggles to indigenize production. to be completed by 2013 2012 Not specified Final delivery due 2011 2011 2011 Induction due in 2012 2011 15.
6 billion USD 2.4 Electronics Acquisitions Electronics acquisitions are subsumed under each service division ( Army. 9.99 billion USD USD 0. 20. 29 33.99 billion USD 198 million USD 144 million USD 0.200) Standalone infrared. seismic and acoustic sensors Infantry upgrades under the Future Infantry Soldier as a System (F-INSAS) project Networked communications and modern strategic and tactical level command and control systems Technology related to gallium nitride semi-conductors Nanotechnologies related to structures. 8. Table 13 : Indian defence acquisition plans in the electronics domain Category Indicative Items (Quantity) Short/medium range battlefield surveillance radars Weapon locating radars (40-50) Hand-held thermal imaging devices (up to 5.4.16. 30 13.16 billion 2008-2022 2008-2022 2010-2014 2008-2022 2008-2022 2008-2022 2008-2022 Timing 2010-2020 Ongoing 2010-2020 2010-2020 2010 2010-2020 2010 USD 0. 21 1. sensors. 24 1. 14. Radars (130) Navy Sonar Gyros (100) Logs (100) Echo sounders (40) Integration of various surveillance/weapon delivery systems (25). 12 4 4 5 5. 22. propulsions and communication Detection Devices. 23 1. 2.3. 25. NBC systems. 3. Navy and AirForce ) in India’s forward budget plans. Upgrade of Cheetah/Cheetak helicopters Upgrade MIG-27s Upgrade of avionics in Sukhois Aerospace Surface-to-air Guided Weapon System (SAGW) Medium Range Surface to Air Missile Systems (MRSAM) Short Range Surface to Air Missile System (SRSAM) Air Defence Ground Environment System (ADGES) modernisation 2010-2015 2010-2020 2010-2020 2010-2020 Ongoing USD 1. 31 13. 10 1. 35 5 5 5. 29 4.15 17 17 18 32 Land 32 | CII Indian Defence Industry Mission EUROSATORY 2010 . 26 3. 27 3.000) Integrated observation equipment (1. 28 5 13.99 billion Source 1.2. remotely operated robots and micro-UAVs based on DRDO technologies Various general electronics including rectifiers (70) and rotary converters (35). Key acquisition plans are given below.
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United Kingdom.4. The Indian Government has budgeted for a substantial increase in nominal Defence Services capital expenditure. In addition to the rapidly expanding defence budget. particularly where the equipment has a high level of technology sophistication. As a consequence. with capital expenditure on Defence Services expanding from USD 15. Japan. 36 | CII Indian Defence Industry Mission EUROSATORY 2010 . the absolute amount spent on imports of equipment will still grow as the growth in capital expenditure holds up imports. the private defence industry in India is relatively immature. while India has a stated goal to transition to a higher proportion of indigenous production (with a notional target of 70 per cent identified). with an average of 57 per cent underspend in budgeted capital expenditure since 2003. reliance on imports is still expected to continue. Although the projected growth in expenditure is high. Countries that spend more on defence than India include developed countries which currently have much lower GDP growth including America.20 billion by 2015. Moreover. India therefore presents an overall significant opportunity for defence equipment exporting companies from around the world. Germany and Italy.4 Conclusion on Defence Requirements India has the tenth largest defence budget in the world.2. The major risk lies not in fiscal capacity but the challenge of meeting such a high rate of growth. creating potentially significant opportunities for Foreign defence exporters. The future growth of the defence industry will continue to face barriers to growth because of the high infrastructure and investment costs that necessarily accompany state of the art development and manufacturing of defence equipment. and although Defence Expenditure is classified as Non Plan expenditure it is likely that other aspects of the budget would come under greater pressure before the capital expenditure budget due to the Central Government’s focus on modernising the armed forces. This has been an effect of the government’s refusal to allow an industry to develop prior to 2001 and the state of the Indian economy prior to the 1990’s which constrained public funding in technologically sophisticated weapons and systems development. Expenditure as a proportion of GDP is expected to remain low. Navy and Air Force. each of India’s Services have shown a consistent inability to keep up with the massive rate of growth in outlays. compared to the size of the defence force’s budget and comparable industries worldwide. By and large the analysis indicates that there are low risks to the Indian Government being able to commit the money it has budgeted. It would be expected that even if indigenous procurements are able to be increased as a percentage of the defence budget.3 billion in 2001 to USD 19. India’s defence force is currently undergoing a modernisation program across the three services of the Army. Total expenditure is expected to grow at a CAGR of 10 per cent from 2011 to 2015. The Indian defence industry also faces export bans by countries limiting the transfer of knowledge and technology to foreign countries. France.
India briefly used a nuclear submarine on lease from the Russians from 1988 to 1991 (the Chakra). ‘Chapter Ten: Reforming India’s defence industries’. Cochin Ship Building Centre. accessed online: http://techspaceofatul.2010 Production Three Kolkota (P-15A) destroyers. The vessels are likely to carry 12 Sagarika submarine launched ballistic missiles (SLBM) with a range of around 700km.india-defence. Figure 14 shows the share of imports and indigenous production for Indian Army capital acquisitions from 2000 to 2005. six Scorpène submarines Landing ship tanks – large. under the supervision of French technicians.org/db/submarines/india/index. The Arihant is the first of three ATVs currently being built.26 In 2006. two Shivalik (P-17) stealth frigates. Source: NTI (2010) ‘India’s current capabilities’.5 Domestic capacity Figure 14: Indian Navy procurements through imports versus indigenous production (2000-2005) 70% 60% 50% 40% 30% 20% 10% 0% 2000-01 2001-02 2002-03 2003-04 2004-05 Imported Indigenous Source: Standing Committee on Defence (2005-06) ‘Procurement Policy and Procedure’ 5. India was forced to purchase the reactor designs from Russia around 1998. Mumbai 26 inistry of Defence (2006) M Standing Committee on Defence — Procurement Policy and Procedure’ 27 ishakhapatnam (2008). India expects to tender for the procurement of six more diesel submarines in the near future. The construction project is being conducted jointly by the DRDO. fast attack craft. at the Ship Building Centre in Vishakapatnam. 110(1).com/reports/3084. V ‘Navy orders 30 ships from Indian dockyards’. fast attack craft Two air-defence ships (P-71) Three Arihant nuclear-powered submarines Garden Reach Shipbuilders & Engineers Ltd.nti. In addition to its fleet of diesel-electric submarines. the INS Arihant. Mormugao Cochin Shipyard Ltd. it faced a number of challenges relating to systems integration and reactor design.html. Although Larsen and Toubro were able to manufacture the hulls and develop or acquire necessary systems for the secret project (code name S2). with plans for an eventual fleet of 5-6 nuclear-propelled submarines that will perform a strategic nuclear role.com/ story/5657 . Tech Space.com/2009/08/03/ins-arihant-indias-first-nuclear-submarine/ Prospects for Global Defence Export Industry in Indian Defence Market | 37 . work on which began in the 1970s. pp 437-478 Examples of India’s current capabilities in Submarine production India is currently in the process of constructing six Scorpène-class boats that are being indigenously built at the Mazagon Dock in Mumbai. The process has faced challenges of time and cost overruns. Vishakapatnam Source: The Military Balance (2010). but has faced many challenges in developing its own indigenously-produced subs. In 2008 the Indian Navy committed to a 15 year program to achieve 85 per cent indigenisation of hardware. India is also in the process of developing an indigenously built nuclear-submarine capability. a position for a Directorate of Indigenisation was created with the charter to pursue indigenisation and import substitution for naval requirements. four P-28 Corvettes Patrol vessels. the Department of Atomic Energy (DAE). In July 2009. last accessed 22. Ultimately.1 Indian manufacturing capabilities Navy capabilities Domestic capacity Indigenous production has historically accounted for roughly half the Indian Navy’s procurements. Kolkata Goa Shipyard Ltd. accessed online: http://newsx.March. and the Indian Navy at Visakhapatnam. is a complex project that has faced multiple difficulties. private contractor Larsen and Toubro.wordpress. It is expected that the vessel will undergo at least two years of extensive sea trials before it can be commissioned into the Indian Navy. (2009) ‘INS ARIHANT INDIA’s First Nuclear Submarine’. India launched its first ATV submarine. Cost Overruns Expected’. accessed online: http://www. The Advanced Technology Vessel (ATV) submarine. accessed online: http://www.27 Table 14 : Major Navy production currently occurring in India Production Agency Mazagon Dockyards Ltd. Private sector Indian firm Larsen and Toubro began work from 1985. India Defence (2007) ‘INS Vikramaditya: Aircraft Carrier Acquisition from Russia Delayed.
develop skilled workforce. The Indian shipbuilding industry has been characterized by low capacity. adopt appropriate fiscal measures. far more than is available in India. poor productivity and obsolescent infrastructure. India’s capabilities in respect of technologically advanced ships. In July 2009. accessed online at: http://www. Of these. the Defence Ministry acknowledge that the Scorpène production was running at least two years behind schedule due to difficulties with the ‘absorption of technologies’. In addition. It would. Barring two notable exceptions.1 lakh DWT and 80. Figure 15 – Indian Army procurements through imports versus indigenous production (2000-2005) 70% 60% 50% 40% 30% 20% 10% 0% 2000-01 2001-02 2002-03 2003-04 2004-05 Imported Indigineous Source: Standing Committee on Defence (2005-06) ‘Procurement Policy and Procedure’ 28 he Military Balance (2010). however.com/2010/03/indianshipbuilding-key-to-maritime-and-economic-security. however. to which are being added the large capacities of three green field projects.28 As reported in 2010 by the Indian Defence Review: Army Capabilities: Indigenous production has historically accounted for around half of India’s Army procurements. we would be able to attract international customers.html March 2010 38 | CII Indian Defence Industry Mission EUROSATORY 2010 . with a larger share of FDI offers an avenue to meet this objective.54 lakh Dead Weight Tonnage (DWT). Figure 16 shows the share of imports to indigenous production for Indian Army capital acquisitions from 2000 to 2005. which were ordered in 2009. 110(1).000 DWT respectively. [Emphasis added] If we are able to produce ships which offer greater operational efficiencies i. Skilled workforce. pp 437-478 Indian shipbuilding is mainly concentrated in 27 shipyards. long-term research in wide ranging fields. which is a strategic shortcoming. six yards being under the Central Government and two under State Government with a capacity of 2. T ‘Chapter Ten: Reforming India’s defence industries’. The construction of six improved Project 17A frigates. In both the naval and commercial sectors. so that Indian shipbuilding can achieve credibility as a source for delivering quality ships in time. adopt appropriate fiscal measures and remove administrative hurdles. therefore strategies to incorporate the results of such research in indigenous shipbuilding need to be evolved. time and cost overruns persist. which involves substantial financial support. The major share of the present capacity is held by eight public sector yards.e.While the Indian Navy has the highest number of indigenous principal platforms among the armed services. the majority of private sector shipyards are limited in respect of capacity and size of the vessels they can presently build. as well as lower acquisition costs than their peers. Source: Indian Defence Review (2010) Indian Shipbuilding Key to Maritime and Economic Security. infuse new technology. notably LNG carriers are non-existent. develop in-house design capability. there are 19 Private Sector yards with an established capacity of about 27000 DWT. is also expected to be delayed due to the lack of sufficient construction capacity and the modernisation that is required in Indian defence shipyards. lower running costs and longer service life. For integrated growth of the industry. not be in our interest to re-invent the wheel. a mere increase in infrastructure will not ensure achievement of desired results. with Cochin Shipyard Limited and Hindustan Shipyard Limited having capacity and infrastructure to built vessels of 1. eight are in the Public Sector. The JV route. Advances in ship design and in construction technology are derived from extensive. there is also a need to create an R&D base.indiandefencereview.
Projects undertaken as part of the IGMD met with varying levels of success. As such.indiastrategic. with only 124 being ordered as a final consequence • In December 2007. in Rediff India Abroad. 29 The private sector has also been involved in the production of military vehicles. accessed online: www. derived from the DRDO’s Integrated Guided Missile Development Program (IGMD). last accessed 22 March 2010 and “India shuts down Trishul missile project”.com/ news/2008/feb/27trishul. While the T-90 and T-72s are Russian designs produced under licence. including the following activities by the DRDO: • Development of the Arjun MBT by the DRDO (with assistance from German defence firms). htm Prospects for Global Defence Export Industry in Indian Defence Market | 39 . 2008.B. in/topstories482. The Akash was subject to significant delays but is now operational • The Trishul SAM project. However. which entered serial production. Avadi • 1. available at http://www.htm. K ‘Indian Army modernisation needs a major push’.700 T-72 M1s have been manufactured under licence. in particular Mahindra Defence Systems and Ashok Leyland. expected within the 2020-25 timeframe. The requirement included indigenous design and production of a gas turbine power plant (later cancelled in favour of a diesel engine). Mahindra Defence systems announced a joint venture with BAE (valued at USD 20m) in January for the production of land-based weapons systems including mine-protected vehicles. Indian strategic defence magazine. Feb 27. Indigenous firms have been involved in a range of tank and vehicle production activities. The DRDO has commenced conceptual stage development of Future Main Battle Tank and Future Infantry Combat Vehicle. (2010). 5(2). a contract was signed for 347 T-90 tanks to be assembled under licence by the Heavy Vehicle Factory (HVF). composite armour. in/topstories482. This is supported by the fact that no significant acquisitions have occurred for over 20 years. which was operational from the 1980s to 2009. accessed online: www. the Arjun MBT is an indigenous design. K ‘Indian Army modernisation needs a major push’. (2010). The failure of the project to come in within the required timelines led to the acquisition of the T-72 tank.indiastrategic.30 29 anwal.There does not appear to be any Indian indigenous capacity in relation to artillery production. also by the HVF. hydro-pneumatic suspension and a 120mm rifled gun. and air defence missiles. Nevertheless. 5(2).rediff. there does appear to be indigenous capacity to develop tanks and other vehicles. G.B. which was shut down after unsuccessful trials. India has a strong history of missile development. for example: • The Akash SAM developed in collaboration with Bharat Electronics Limited (BEL). it was a highly ambitious project that originated in a requirement in 1972. G. last accessed 22 March 2010 30 anwal.htm. Indian strategic defence magazine. Arjun tanks are currently being built and the development of this MBT has lead to the creation of considerable capability in the Indian defence industry. but had recurring technological problems and cost over-runs.
Note: One crore = 10 million Rupees.html Table 15: HAL Key Financial Performance Indicators.net/ebook. some items such as longer range missiles would be developed indigenously. and is a significant player in the defence industry as a whole.The state owned HAL is India’s only military aircraft producer. SP’s Land Forces Defence Magazine.defenseaerospace.740 675 % Growth 20. with the DRDO announcing that while most future weapon systems would be developed in collaboration with foreign partners.32 Air Force Capabilities : Domestic capacity: Hindustan Aeronautics Limited (HAL) The state owned HAL is India’s only military aircraft producer.4 94. asp?id=10021214515366d09a480f7d45a690 df68981bccd702&Nam e=sps-land-forces-febmar-2010&Info=SP’s%20 Land%20Forces%20 Fab-Mar%20 2010&t=1266237474406&r=6. has 12 divisions. http://www. including the Gagan. last accessed 22 March 2010 33 peech by Defence S Minister Shri AK Antony at the National Seminar on Defence Industry. G.6 378 146. 2007-08 and 2008-09 Year Turnover Exports Profit Before Tax Profit After Tax R&D Spending 2007-08 (Rupees in crore) 8.33 The company’s current order book has a value of more than 60. 31 India scraps integrated “ guided missile programme” in the Hindu Times. which was an increase of more than 20 per cent compared to the previous year.200 crore rupees (USD 4. New Delhi. K ‘Mined in Red Tape’.373 437 2. January 2009. during 2007-08 the value of production by all Indian defence public-sector undertakings totalled nearly 19. 7(1). and 1 USD = 46 Rupees. spslandforces. January 9.14 billion).62 1. and accounted for around half of total DPSU production by value in 2006-07. (2010).5 507. HAL is one of India’s DPSUs. pp 1 – 6 & 13 - 14. 40 | CII Indian Defence Industry Mission EUROSATORY 2010 .632 662 2008-09 (Rupees in crore) 10.91 2008-09 (USD million) 2255. In early 2009 the IGMD was closed down. htm last accessed 24 March 2010 32 anwal. Pawan (a joint program between the DRDO and Israelis Aerospace Industries) and Rustom (a medium altitude long endurance UAV).com/thehindu/ holnus/000200801090301. and is a significant player in the defence industry as a whole.com/articleview/verbatim/101644/ indian-minister-speech-ondefense-industry.7 Source: HAL 2008-09 Annual Report. the state run HAL manufactures combat aircraft and helicopters. To put HAL’s size in perspective.31 A range of indigenous UAVs are in the design and development pipeline. accessed online: http://www.hindu.B. page 10.164 1.00 7. HAL is one of India’s DPSUs.335 1.000 crore Rs (USD 13. 2008 available at http:// www.88 6.05 billion). Table 15 below shows that HAL has also recently experienced rapid growth (28 per cent) in export earnings.27 28.625 341 2.
foreign companies often turn to HAL to meet this offset requirement.indiaprwire.’36 In comparison. 34 ovindsamy.35 Since HAL is India’s only military aircraft manufacturer. The first relates to creating a climate for the indigenous development of technology in the country and the second deals with the transfer and adaptation of technology from advanced countries. (2010) ‘Defence Electronics Growing Fast’. Figure 16 below illustrates HAL’s dominance of the Indian military aircraft market.nic. page 3. the production of strategic electronics within India was approximately INS 61 billion. HAL has produced MiG 21s.March. These investments directly benefit HAL. ToT from advanced countries (such as United States and Israel) and Research and Development and Technical support to the field Army. with an annual growth rate of around 35 per cent.eetindia.financialexpress.2010 40 http://www. Under this JV.pdf h 37 AL 2008-09 Annual Report. and has a one-for-one matching program for production of this aircraft with Russia.co. HAL’s inland sales for the 2008-09 financial year totalled 9. (2010) ‘HAL Sets Sites on Global Presence’. foreign companies that receive import orders worth over USD 64. over 80 per cent of the total government capital outlay in that year.80 crore rupees. and there are plans for a joint venture (also with UAC) to produce a medium multi-role transport aircraft (MTA). March. Samtel is to provide MFDs (Multifunctional Displays) for the S-30MKI and LCA aircraft being produced by HAL. Opportunities in the Defence Industry include the major modernisation of existing electronics equipment.com. the Hawk trainer aircraft.com/news/boeinghal-ink-4. accessed D online: www. innovation and product improvement. various issues.39 Another example of a successful public-private partnership is Samtel Display Systems “SDS-HAL JV”. the Dhruv advanced light helicopter (ALH). The company is currently building the Sukhoi Su-30 MKI aircraft. last accessed 23.com/pressrelease/defense/2010020943158. The company will jointly develop the fifth generation fighter aircraft (FGFA) with the United Aircraft Corporation (UAC) of Russia. in 2008 the India Defence Minister ruled out a foreign partnership to accelerate the program. last accessed 22. It is fast emerging as a prime contractor to the Ministry of Defence for indigenous defence electronics production.936. Jaguars.40 8000 6000 4000 2000 0 Year Indian Government Budgeted Capital Outlays on IAF Aircraft and Aeroengine Capital Outlays Value of HAL Domestic Sales Source: Indian Government Budget. Despite the delays in the LCA/Tejas program. Electronics Manufacturing Capabilities: Domestic Capacity The strategic electronics market is a rapidly expanding industry within India. http://www.986.7 crore rupees for Air Force capital outlays on ‘Air-Craft and Aero Engines. G flightglobal.in/ART_8800599239_1800003_NT_2bd24a4d.html 35 ttp://www. accessed on 01 Jun 2010 Prospects for Global Defence Export Industry in Indian Defence Market | 41 .in/ub2008-09/eb/sbe26. The Indian 2008-09 Budget allowed for 11. 38 Both private companies and public units are rapidly entering into the defence electronics development and manufacturing market. indigenisation of major assembly and spare parts. S. The Department of Information Technology reported that in 2007-08. HAL Annual Report 2008-09. even though the contract will be awarded to a foreign supplier.37 Figure 16 : HAL Domestic Sales and Indian Government IAF Aircraft and Aeroengine Capital Outlays.2010 39 as. Electronics for You.34 Under the current rules. recognised for its vast engineering capabilities. Tata Power SED is the leading domestic player in strategic electronics. HAL is also India’s main beneficiary of offset policies.5m-deal-for-reconnaissance-aircraft/578734/ h 36 ttp://indiabudget.1997-2008 14000 12000 10000 Crore of Rupees In terms of product lines. either through direct supply or by setting up joint venture arrangements.5 billion.HTM .6 million must draw at least 30 per cent of that order from domestic suppliers or make a similar sized investment within India. India has adopted a two layered approach to achieving increased techno-economic development in the Indian defence sector.As Table 15 shows. in 2008-09 HAL had turnover of USD2.March.efymag. H 38 ETimes India (2010) ‘Defence offers opportunities to Indian Electronics’.htm. Flight International. May 2009 pp 111.com/ articles/2010/03/01/338726/hal-sets-sights-on-global-presence. accessed online: http:// E www. Under domestic production requirements HAL will also likely build most (108 out of 126) of the MMRCA aircraft. S.
Navy special products like molybdenum wires and plates. It has even earned the Goverment’s Nav Ratna status. development.41 ORCE (2010) ‘Soldiers’ Pack F DRDO showcases a range of vital equipments’.drdo. produced by BEL and used by the army • Rajendra and 3D-CAR radars for the Akash surface to air missile system • Super Vision Maritime Patrol Radar (SV-2000 MPAR).44 Table 16 sets out the main products and services provided by each DPSU. due to limitations of indigenous capabilities. org/labs/lrde/achieve.2010 42 RDO website. manufactured by private industry and in wide use in the defence services. torpedo counter measure system. last accessed 23.473-478 44 PMG (2010) Opportunities K in the Indian Defence Sector. atomic energy. titanium and stainless steel tubes. Builds a variety of medium size. manufacture. Goverment of India. counter measures dispensing system Aeronautics. February. alloys etc. engines and their accessories Design. repair and overhaul of aircraft. special purpose ships for the defence. missile boats.aspx . which accounts for around 86 per cent of the indigenous market.net/november/ coverstory9. India has historically relied heavily on foreign supply for its defence needs. The eight Defence Public Sector Undertakings (DPSUs) are responsible for over 65 per cent of the total value of public sector production. battery operated surveillance radar). space. However.43 Defence Public Sector Undertakings Indigenous defence production is heavily weighted towards the public sector. development and manufacture of sophisticated state-or-the-art electronic equipment components for the use of the defence services.2 Domestic competition Increasing self-sufficiency in the supply of defence requirements through the support and development of the indigenous defence industry has long been an objective of the Indian Government.41 The LRDE is India’s foremost radar design and development establishment. LDRE D Achievments. para-military organisations and other government users Multi-product company engaged in the design and manufacture of a wide range of equipment including specialised heavy vehicles for defence and re-engineering solutions in automotive and aeronautics Submarines. The laboratories are involved in the production of surveillance and reconnaissance equipment. helicopters. however it also works with various private firms. 42 5. BEL is one of the 8 PSU’s under Ministry of Defence. DPSU Bharat Electronics Limited (BEL) is the LRDEs primary production partner. accessed online: http://www. Indian Coast Guard (ICG) and civil sectors CII Indian Defence Industry Mission EUROSATORY 2010 . armaments. frigates and corvettes for the Indian Navy Builds and repairs warships and auxiliary vessels for the Indian Navy and the Coast Guard Missiles. accessed online: http://www. last accessed 6 April 2010 43 2010) ‘Chapter Ten: ( Reforming India’s Defence Industries’ in The Military Balance. forceindia. communicating and networking technologies and detection technologies. prepared for the Confederation of Indian Industry The DRDO has a network of more than 50 laboratories in Indian engaged in developing defence technologies covering various disciplines. destroyers. and the Battle Field Surveillance Radar - Short Range (BFSR-SR) (a man portable. The LRDE has been responsible for the development of a range of radar systems including: • INDRA-I and INDRA-II vehicle-mounted surveillance radars. designed and developed for the Advanced Light Helicopter • Avalanche Victim Detector (AVD). pp.html. consistently importing over 70 per cent of its equipment. Table 16 : Defence Public Sector Undertakings DPSU Hindustan Aeronautics Limited (HAL) Bharat Electronics Limited (BEL) Bharat Earth Movers Ltd (BEML) Mazagon Dock Limited (MDL) Garden Reach Shipbuilders & Engineers Ltd (GRSE) Bharat Dynamics Limited (BDL) Mishra Dhatu Nigam Limited (MIDHANI) Goa Shipyard Ltd (GSL) 42 | Product areas Design.March.
H. pp. components and spare parts due to a range of restrictions on participation in arms production. 3 August 2008. the largest provider of information technology and business process outsourcing services in India. Manufacture of various forged and machined components for the automotive and non-automotive sector. inefficiencies in local production have led to substantial delays in the provision of arms and equipment.financialexpress. including aerospace. These restrictions have only relatively recently been relaxed.Private industry The Indian private sector has historically been limited to the supply of basic and intermediate products. simulators for weapons and weapon systems. construction and custom-built critical equipment. the concept of the Raksha Udyog Ratnas (RURs). was created as part of the 2006 update to the DPP. (2008). development and manufacture of special vehicles for armed forces. product engineering. with the status of the policy now uncertain. or private sector industry champions. Design. India’s largest private sector electricity generating company. R (2007). India's largest company in the automobile and commercial vehicle sector.473-478 46 inistry of Defence (2008). ‘Defence min does away with RUR status for pvt military hardware cos’. and can also receive preferential treatment in terms of selection by the Government for receiving technology and undertaking licensed production with ToT from overseas sources. htm and Siddiqui. • Mahindra Defence Systems. aerospace. small arms and ammunition. giving them similar treatment as the DPSUs in terms of tax treatment and prioritisation for R&D funding and access to ToT contracts. outsourcing software. composite components and intermediate services for aerospace and defence applications. power plants). maintenance. RUR status would be granted to a select number of private sector defence firms. the 25 year development and testing period for the Tejas light combat aircraft has resulted in the requirement for medium multi-role combat aircraft (MMRCA) being likely to be met with imports from the United States. However. with key firms including: • Tata Group Companies . Light combat and armoured vehicles.164 47 pportunities in the Indian O Defence Sector. ‘12 firms to get Raksha Udyog Ratna status’. M Defence Procurement Procedure. which provides design. custom software development. February. development and manufacture of integrated land-based and naval missile systems.thehindu. p. which provides light vehicles. which manufacture missile and rockets launchers. re-engineering. 45 Raksha Udyog Ratnas The DPSUs currently enjoy a range of tax exemptions and concessions. independent testing and validation services.com/news/ defence-min-does-away-with-rur-status-for-pvt-military-hardware-cos/343921/ Prospects for Global Defence Export Industry in Indian Defence Market | 43 . systems integration and communication. accessed online: http://www. electronics.com/2007/06/18/stories/2007061801911300. machinery and engineering services. criticism from the defence industry has led the appointment of RURs to be put on hold. Infrastructure projects (water supply. The Hindu. development and manufacture of missile systems. receive funding from Government to develop R&D and manufacturing capabilities. Current private sector capabilities continue to be largely focussed on components and intermediate manufacture. Following the DPP 2006.46 In order to support the development of private sector capabilities. Systems integration. For example. twelve firms were considered for RUR status. High tech engineering. IT infrastructure services and business process outsourcing. and industrial domains. control systems and integrated naval engineering systems. Table 17 : Potential RURs identified Potential RURs Products/services Ashok Leyland Bharat Forge Godrej and Boyce HCL Technologies Infosys Technologies 45 010) ‘Chapter Ten: 2 Reforming India’s Defence Industries’ in The Military Balance. softeare services providers.47 Table 17 sets out the potential RURs thought to be under consideration by the Ministry of Defence (identified by industry sources). June 18 2007. electronics and naval engineering systems • Punj Lloyd. mines and small arms • Larsen and Toubro. Software services and consulting. IT & software development company offering various services such as application development. prepared for the Confederation of Indian Industry by KPMG (2010) Design. high-tech. electronics. Financial Express. with 100 per cent private ownership of defence sector production being allowed in 2001. accessed online: http://www. Despite the Government’s objectives and policies supporting the indigenous industry. which provides engineering and construction services • Samtel. sea mines. simulators for weapons and weapons systems. which is an integrated manufacturer of a wide range of displays for avionics. IT and systems support in automobile. Kirloskar Brothers Larsen and Toubro Mahindra and Mahindra Tata Consultancy Tata Motors Tata Power Wipro Technologies Sources: Sharma. often leading to opportunities for foreign-based firms to fill the gaps. engineered and industrial pumps.
The Ordnance Factories Board is the largest and oldest departmentally run production organisation in the country and is engaged primarily in the production of state of art battlefield equipments. the Indian Ordnance Factories Organisation is a family of 40 Ordnance Factories functioning under the aegis of a single corporate headquarters. It should be noted that the list is by no means comprehensive. research. testing. The ordnance factories were established with a mandate to ensure self reliance in manufacturing of defence hardware. accessed online at: http://ofbindia. sea and air systems. general stores and equipment for defence services. clothing. logistics. vehicles (Armoured and transport). in Kolkata (Box 6. 48 Other private and public sector defence firms The following table 18 provides a brief overview of private sector firms involved in defence procurements in India and non-DPSU public sector firms. development and marketing of comprehensive product range in the areas of land.Ordnance Factories With more than 200 years of experience in defence production. the Ordnance Factories Board. The Ordnance Factories Board is engaged in production. Box 2 : Ordnance Factories in India Ammunition Factory Khadki (AFK) Cordite Factory Aruvankadu (CFA) Engine Factory Avadi (EFA) Field Gun Factory Kanpur (FGK) Gun Carriage Factory (GCF) Grey Iron Foundry (GIF) Gun and Shell Factory (GSF) Heavy Alloy Penetrator Project (HAPP) High Explosive Factory (HEF) Heavy Vehicle Factory (HVF) Machine Tool Prototype Factory (MPF) Metal and Steel Factory (MSF) Ordnance Clothing Factory Avadi (OCFAV) Ordnance Cable Factory Chandigarh (OCFC) Ordnance Factory Bhusawal (OFBH) Ordnance Factory Bolangir (OFBOL) Ordnance Factory Kanpur (OFC) Ordnance Factory Chandrapur (OFCH) Ordnance Factory Dumdum (OFDC) Ordnance Factory Dehu Road (OFDR) Ordnance Factory Dehradun (OFDUN) Ordnance Factory Itarsi (OFI) Ordnance Factory Khamaria (OFK) Ordnance Factory Katni (OFKAT) Ordnance Factory Muradnagar (OFM) Ordnance Factory Project Nalanda (OFN) Ordnance Factory Project Medak (OFPM) Ordnance Factory Tiruchirapalli (OFT) Ordnance Clothing Factory Shahjahanpur Ordnance Factory Varangaon (OFV) (OCFS) Ordnance Equipment Factory Kanpur (OEFC) Ordnance Equipment Factory Hazratpur (OEFHZ) Ordnance Factory Ambernath (OFA) Ordnance Factory Ambajhari (OFAJ) Ordnance Factory Bhandara (OFBA) Opto Electronics Factory (OLF) Ordnance Parachute Factory (OPF) Rifle Factory Ishapore (RFI) Small Arms Factory (SAF) Vehicle Factory Jabalpur (VFJ) Source: Indian Ordnance Factories.in 48 anas Defence Yearbook M 2010-2011. The organisation functions under the department of Defence Production and Supplies and is a dedicated facility for manufacture of weapons.gov.1). ammunitions. particularly given the increasing involvement of small and medium enterprises in the defence sector. pg 139 44 | CII Indian Defence Industry Mission EUROSATORY 2010 .
F. Utilities Limited Bharat Forge* Bharati Shipyard Data Patterns (India) Dynamic Technologies Limited EON Infotech Godrej and Boyce* HBL Nife Power Systems HCL Technologies* Heavy Engineering Corporation Hindustan Opticals Indtech Construction Infosys Technologies* Infotech Enterprises Limited IST Limited Jupiter Strategic Technologies KEW Industries Limited Kirloskar Brothers* KPIT Cummins Infosystems Larsen & Toubro* √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ Navy √ √ Land Aerospace Electronics Firm Macmet Technologies Limited Magnum Aviation Mahindra Group* Max Aerospace and Aviation Limited MEL Systems & Services Limited Memory Electronics Nova Integrated Systems Limited Pipavav Shipyard Punj Lloyd Limited Radiant Cables Ramoss India RMX Bridport Defence Systems Pvt Rolta Samtel Display Systems SEC Industries Private SIGMA Microsystems Southern Group Industries Speck Systems Shri Bajrang Alloys Limited √ Steel Authority of India Limited Svipja Technologies Tata Group* TIL Tractors India Limited TSL Defence Technologies Pvt Vectra Technologies VEM Technologies VXL Technologies Walchandnagar Industries √ Limited Wartsila India Wipro Technologies* Zen Technologies Note: *Previously under consideration for RUR status Prospects for Global Defence Export Industry in Indian Defence Market | 45 Navy Land Aerospace Electronics √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ .Table 18: Private sector defence firms & key operating domains Firm ABG Shipyards Advance Tech Control Pvt limited Allen Reinforced Plastics Alpha Phazotron radar Equipment & Systems Alpha-ITL Electro Optics Private Anjani Technoplast Ashok Leyland* Astra Microwave Products Limited Aurora Integrated Systems Pvt Ltd Automotive Coaches & Components B.
(2009) Offset V Contracts under Defence Procurement Regulations in India: Evolution. Defence Public Sector Undertakings (DPSUs). once the contract (main and Offset) are signed. and (in rate cases). no revision of cost.e. Offsets can be undertaken under any of the above mentioned categories. whether upwards or downwards is permitted. Challenges and Prospects. Government policies must ensure speedy transaction and lesser costs and taxes. change offset partners in order to meet the requirements. Indian defence industry. defence products and components manufactured by. i.1 Costs: Offsets Offset contracts typically refer to requirements imposed by the Government on vendors to source a specific level of components from indigenous firms.6 Financial implications The 2009 amendment to the 2008-DPP allows the DAC to prescribe offset percentages above 30 per cent. life extension. Capital Acquisition and Offset: 52 Figure 17 gives the flow chart on required offset under various categories of acquisitions. The capital budget for 2007-08.50 However. with a relatively higher proportion of the defence budget being allocated for capital expenditure. joint ventures and co-production of defence products. Offset requirements apply to all acquisitions categorised as Buy (Global). engineering. and 30 per cent of the foreign exchange component in Buy and Make categories. M Defence Procurement Procedure. Ordnance Factory Board (OFB). In addition. There is also a provision allowing vendors to select their own offset partner. In order to get the maximum profit in the shortest possible time. there has been a debate on the issue of Indian defence industry’s capability to absorb a huge amount of offsets. • Direct foreign investment in Indian organisations engaged in defence R&D as certified by the Defence Offset Facilitation Agency (DOFA). and any private defence industry manufacturing these products or components under an industrial licence granted for such manufacture. 49 inistry of Defence (2008). design. for example A defence industry will always look for reducing costs.51 The 2008-DPP contains a list of defence products (and covered defence industries) that are able to be used to meet offset obligations. 300 crore or more (approximately USD 75 million). For the purpose of defence offsets. testing. TOT is not recognised as a method of meeting offset requirements. This is even more pertinent considering that the armed forces’ modernisation has been stepped up in recent years. defence acquisitions approved for the FTP are completely exempt from offset obligations. upgradation. or executing export orders for. or services provided by. co-development. “services” will mean maintenance. Buy and Make or Buy and Make (Indian). Of late. where the estimated cost of the acquisition is Rs. Appendix D. • Direct foreign investment in Indian defence industries for industrial infrastructure for services. Under the 2008-DPP.taxes during a defence deal. or alternatively waive offset obligations entirely at its discretion. pp20-11 52 Deloitte compilation 46 | CII Indian Defence Industry Mission EUROSATORY 2010 . overhaul. 49 Offset obligations have historically been set at 30 per cent of the contract value for the Buy (Global) category. Offsets impose a cost on the vendor in question and are therefore generally responded to an increase in the margin for the price of the contract. p. offset obligations can be met in the following manner: • Direct purchase of. defence related software or quality assurance services. 6. Contracts of lesser value are not subject to offset requirements.43 50 efence Procurement D Procedure- 2008 (Amendment-2009) 51 erma S.
As against such defence export figure.53 On an annualised basis. offset to be 30% of the foreign exchange component Prospects for Global Defence Export Industry in Indian Defence Market | 47 . For the following financial year (2008- 09). the current value of defence exports from the country appears too small. developed and produced indigenously) Buy Indian (Indian Vendors Only) No offset requirements No offset requirements (Minimum 30% indigenous content in case of integration being done by Indian vendor) Indian Vendor Foreign Vendor Buy + Make (Indian) (Purchase from Indian companies) Indigenous content in product is at least 50% Offset requirement to be 30% of the estimated cost of acquisition Minimum 50% to be indigenous contents YES NO No offset requirements Offset obligations to be fulfilled on the foreign component i. the same should result in offsets worth USD 4. the value of Indian defence exports stood at Rs 342 crore (USD 85 million).was over USD 10 billion. with a minimum threshold of 30 percent of the main contract. USD 15 billion out of USD 22 billion) is catered for meeting import requirements. offsets between Figure 17: Flow chart of various categories of acquisition Capital Acquisition and Offset Requirement Buy Outright (Purchase Equipment) Buy + Make (Purchase from foreign vendor followed by licensed production/ indigenous manufacture in the country) Buy Global (Indian as well as foreign vendors) Offset requirements to be 30% of the foreign exchange component to be fulfilled Make (High technology.e.000 crore for these two years alone. If one assumes that 70 percent of the capital budget (i.5 billion or Rs 18.e. Against such a huge potential of offsets. complex systems to be designed. the offsets have been pegged higher at 50 percent of the contract value. For the year 2007-08 (up to December 2007 or the first nine months of the financial year). It is pertinent to note that in some cases such as the proposal to acquire 126 Medium Multi-Role Combat Aircraft (MMRCA). the value of exports works out to around Rs 456 crore (USD 114 million). this figure was around USD12 billion.
But the amount of investments announced in these proposed tie-ups is only a trickle in what is seen as a huge ocean of offsets. the gap between existing quantum of exports and what is required to be undertaken as part of offset obligations of the vendors is too huge. such large infrastructural investments may take years before the production can be stepped up. and the road ahead is rather long. The entry of the private sector in the defence industry has been permitted as recently as 2001 with a maximum cap of 26 percent foreign equity. well-educated talent pool. Indian MRO segment is estimated to reach USD 1. etc. Further. location advantage for MRO. Apart from export of defence equipment and services. abundant low cost skilled workforce. One way to absorb the huge quantum of offsets is to hike the FDI in defence industry from 26 percent to 49 percent. Thus.2 Relative Advantages Opportunity in India India has great market advantages because of high defence & commercial aircraft demand. etc. M Government of India Annual Report. these three segments must account for 1/3M of offsets each every year.56.54 In other words. 48 | CII Indian Defence Industry Mission EUROSATORY 2010 53 inistry of Defence. strong domestic manufacturing base. L&T and leading arms manufacturing companies such as Boeing. strong domestic manufacturing base. India has great market advantages because of high defence & commercial aircraft demand. (b) FDI in defence industry. push for private participation in manufacturing and R&D. . On a rough approximation. 54 s per the present Indian A defence offsets policy. The initial response to such a liberalised policy was muted as no major private company came forward for investment in the defence industry. sharing of eighty percent of development. Of late. offset policy. space. a few Joint Venture (IV) proposals and Memorandums of Understanding (MOUs) have been announced involving major Indian companies such as Tata. The Government is also giving thrust which is exhibited through large and growing spend on defence. cost advantages. civil aviation and Research and development (R&D). Pan 7.6 billion by 2020 and Indian offshore engineering is expected to be at 25 per cent of the total offshore engineering spend. To be able to undertake such huge amount of exports requires investment of a large magnitude in the indigenous defence industrial infrastructure. location advantage for MRO. homeland security.Rs 3. and (c) FDI in Indian defence R&D organisations. ability to leverage IT competitiveness. Lockheed Martin. abundant low cost skilled workforce. given the current ratio of capital expenditure allocation in the defence budget. well-educated talent pool. it may become an arduous task for undertaking the offset obligations by the vendor companies.e. In the absence of defence export potential and with limited scope for FDI. in a way. Besides defence spend. ability to leverage IT competitiveness. This. liberalization of defence and civil aviation sectors. the two areas for implementing offsets are in the form of FDI in Indian defence industry or defence R&D organisations. 6.17 billion by 2010 and USD 2. is also a major challenge for those in the government responsible for implementing the policy. In addition. cost advantages. the value of defence exports needs to go up by 8 to 10 times the current level. (a) export of defence equipment and services.000-4. as demanded by a section of the industry. the Government has budgeted for space. until recently.000 crore (USD 750 million-1 billion) need to be undertaken every year. offsets can be undertaken under three broad categories i. costs with private players for the defence R&D. 2007-08.
Prospects for Global Defence Export Industry in Indian Defence Market | 49 .
Israel. This would give them a presence abroad to interact and do business with OEMs and suppliers directly. with European and Asian countries spending less (see Figures 18 and 19).S.10% 0. global defence spending will likely stay at approximately 2 percent of global GDP. Of this. The global industry is truly at an inflection point and it is continuing to move rapidly east — toward China. These countries are expected to be large markets for A&D industry products and services. about 70 percent of procurement in value terms is from foreign sources — with Indian companies supplying only around 25 percent of components and subassemblies to state-owned companies. will likely have an impact on additional spending. India’s armed forces are expected to increase their purchases of new equipment and technology for the next 20 to 25 years. India. It is estimated that Indian defence procurement will rise to an estimated USD 45 billion by 2015. coupled with cost overrun challenges on major programs around the world.00% 1. Industry consolidation in India may be on the upswing for larger companies that have desire to enter manufacturing businesses. as well as participants in the supply chain.00% and the United States spending a proportionately higher amount. with the third-largest defence procurement budget in Asia. Currently.40% 2. A&D Prospects of India in Asia In India. A&D sector leader. with Saudi Arabia. In 2010 to 2011.30% 4. while simultaneously harnessing the advantages that India as a manufacturing destination provides. However. USD 32. In light of the Mumbai attacks as well as the overall need to modernize its defensive capabilities. foreign acquisitions are expected to be more affordable at this time.7 Benefits in Indian defence industry and barriers thereto 7. which could make it one of the most attractive defence markets in the world.30% 1. In India. the prospects for the defence sector are strong. India World Sweden Canada Mexico 0% 2. the sector is growing at an unprec¬edented rate and emerging as a key participant in the Asia Pacific region.1 Benefits in Indian defense industry56 for global aerospace and defence industry Global trends in aerospace and defence The global defence markets are likely to stay flat this year.50% 2. USD 13. A&D sector analysis 50 | CII Indian Defence Industry Mission EUROSATORY 2010 .04 billion is to be spent on acquisitions for new weapons systems equipment and services. foreign companies will likely continue to have an edge in the supply of defence armaments and transfer of technology. and the Middle East. Liberalization of India’s defence procurement policy offers a unique opportunity for Indian companies to provide services for the armed forces. defense market. 56 ompass 2010 Global C Aerospace & Defense sector outlook – Deloitte Report by Deloitte A&D Team led by Tom Captain. DTT Global Manufacturing Industry Source: Central Intelligence Agency (CIA) Figure 19 : Percentage of total global defense spend Asia and Oceania 13% South America 3% Western Europe 22% North America 45% Central & Europe 9% Middle East 7% Africa 1% Source: SIPR and DTT Global Manufacturing Industry. United States and European aerospace companies are now recognizing India as a critical market as well as a potential manufacturing partner.50% 1.03 billion has been earmarked for national defence. India is becoming one of the largest military spenders in the world and catching worldwide attention. Even so. In India. the largest in the world.S. primarily due to the softening of the U. Figure 18 : Defense spend as percentage of country GDP Saudi Arabia U. Cancellations of major weapons programs in the United States. in the near-term. But the situation is expected to change with the creation of more publicprivate partner¬ships.90% 10.80% 0.10% 3.80% 1.50% 4% 8% 12% 7.
We have delved into the following areas to get the perspective on competitiveness in Indian A&D sector. automation and manufacturing best practices to achieve competitiveness. On the quality front. There is a lot of synergy between automotive. persistent focus on infrastructure development. The firms would be expected to play a vital India is being considered as the next destination of manufacturing given country’s strength like wider supplier base. there would be increased pressure from cost of living and inflation perspective. discreet manufacturing and A&D industry due to its similar operations and business processes. The proximity to sources will not be a barrier as the specialized components/sub-assemblies can be sourced from other low cost regions with desired technology requirements. working environment. The nature of A&D industry is as such technology intensive. The supply chain aspects such as responsiveness. the nature of supply chain in A&D sector is entrenched with several players adding value on component and sub-assemblies at a given point. low cost manufacturing. role in collaborative product development and ensuring quick launches by leveraging re-use of the existing platforms and components. Productivity India has a total labour force of around 450 million. flexibility in operations and quality would remain the focus areas for the A&D firms. persistent focus on infrastructure development. quality and technology aspects in the products. several larger and medium size suppliers are entering into the fray to take a pie of mammoth A&D industry. most of these firms have reached to 6 sigma level only. Supply Chain Since around two third cost of the end product reside across supply chain. Consolidations Hitherto A&D space was owned by vertically integrated OEMs. the industry is Prospects for Global Defence Export Industry in Indian Defence Market | 51 . lean supply chain. But this trend has changed globally in the recent years as firms want to leverage core competency of the group and offload the respective value add work to the upstream firms. the technology would be brought in mainly by foreign players. We have seen remarkable developments in these two areas in the recent years but we still need concerted efforts to take it to the full maturity. managing complex supply chain would remain one of the vital aspects of A&D industry. Since the nature of A&D industry is more specialized than other industries. huge pool of skilled workforce and increased penchant for enhancing competitiveness by the respective firms. low cost manufacturing. The emerged assemblers and integrators would treat their upstream suppliers as risk sharing partners. Government’s ingrained focus on enhancing the skill sets through substantial increase in technical skill courses. These strengths can be leveraged by the existing firms entering into A&D space. Technology and quality Though in the initial years. the A&D industry essentially works on 9 Sigma and though several Indian firms have embraced stringent quality standards. these firms need a focussed approach in order to achieve economics of scale and at the same time being efficient and lean in operations to remain competitive. setting up of R&D base would provide a major boost to productivity increase.Competitiveness in A&D Sector India is being considered as the next destination of manufacturing given country’s strength like wider supplier base. Given this opportunity coupled with offset policy. Though there is a clear advantage of labour cost in India. Hitherto Indian firms lacked the global competitiveness in engineering. the Indian firms need to quickly ramp up the technology base in order to play a more collaborative role with assemblers and integrators. The firms will have to really emphasize on labour productivity. faster deliveries. huge pool of skilled workforce and increased penchant for enhancing competitiveness by the respective firms. However lately there is an increasing thrust on these aspects. industry-university relationships. Unlike other industries. The firms undertaking opportunities in A&D sector would evolve themselves as integrators or super integrators and their role will increasingly become larger in the A&D value chain. innovation and automation driven coupled with the complex supply chain. Considering the massive opportunities that A&D sector has opened up for respective firms.
expected to see more consolidations. There would be a thrust on JVs and partnerships too in order to achieve technology and capacities quickly. Given the current constraints of 26% FDI, the foreign firms would hold control of product know-how. However in the long run it is not a cause of worry. The local firms would be keen on joint ventures and partnerships with foreign firms. At the same time, the foreign acquisitions are also expected to be formed by local firms. This would give them a presence abroad to interact and do business with OEMs and suppliers directly, while simultaneously harnessing the advantages that India as a manufacturing destination provides. 7.2 Barriers and risks 7.2.1 Restrictions on foreign investment India has historically applied tight restrictions on the allowable amount of foreign investment in the defence industry, due to concerns that foreign involvement would hinder the development of the indigenous private and public sector firms. In 2001, the Government opened the defence sector for private Indian companies with 100% Indian shareholding and allowed limit of 26% for foreign Direct investment. However, this is still seen as prohibitively restrictive by potential investors. The 2009 Annual Economic Survey, submitted to Indian Parliament by the Chief Economic Advisor in the Ministry of Finance on behalf of the Indian corporate sector, recommended that the FDI limit should be increased to 49 per cent.57 There has been debated discussion on increase of FDI from the present level of 26% in Ministry of Commerce and in private industry. However, Ministry of Defence is resilient on increase. 7.2.2 Taxation Issues There is also a range of indirect taxes that can impact or disadvantage foreign participation in the Indian defence industry. There is no level playing field for Indian private defence industry vis-a-vis DPSUs. For example, customs duty and/or service taxes may apply to: • Imported equipment or transfer of intellectual property under licensing arrangements for the purposes of Transfer of Technology (TOT), which is a common requirement of procurement contracts. • Training services provided to the armed forces for new equipment and machinery • Repair and maintenance services Joint ventures (JVs) can be formed to meet offset obligations. These are subject to the same tax regime as Indian
52 | CII Indian Defence Industry Mission EUROSATORY 2010
companies, but can also include a number of requirements such as business registrations, filing tax returns and payment of applicable custom duties. An overview of regulatory and taxation on defence industry is given in the Annexure 1. 7.2.3 Domestic competition Increasing self-sufficiency in the supply of defence requirements through the support and development of the indigenous defence industry has long been an objective of the Indian Government. However, due to limitations of indigenous capabilities, India has historically relied heavily on foreign supply for its defence needs, consistently importing over 70 per cent of its equipment. This topic has been discussed in detail in section 6 above. 7.2.4 Supply Chain Issues Though India has a widespread supply chain network, large supply base and favourable investment environment in place, there is a massive potential to bring structured improvements in supply chain of A&D industry. The supply chain has become a cornerstone of a firm’s success irrespective of the scale and complexity of the firm. It has also gained wider momentum in the recent years and firms are at different stages of adopting the best practices from the same/other industry in the relevant functions. Since A&D is a new industry particularly in the Indian market, the firms in this sector can adopt the relevant best practices at the early stage of setting up facility. However several firms have still not reached to a stage of full maturity of production, quality, delivery, distribution, maintenance processes. It is further compounded by impediments such as infrastructure bottlenecks and delays in compliance measures. Since value add will be imparted by several players in a staged approach, the viability of operations of respective firms should be a priority area to exploit the competitive advantage in the value chain. The government and the respective firms need to put concerted efforts in tandem to debilitate these impediments as a step towards competitiveness in the A&D sector. 7.2.5 DPP restrictions The Defence Procurement Procedure (DPP) sets out the requirements for the participation of foreign firms in the defence acquisitions of the Indian Government. The DPP effectively establishes non-tariff trade barriers to the participation of foreign firms in the Indian defence market. The key barriers include: • the various categories for capital acquisitions • the offset requirements.
57 isquitta, S. (2009) M ‘Defence contractors Target Big Jump in India’s Military Spending’ in The Wall Street Journal, July 17
Categories for capital acquisitions As noted above, the DPP-2008 (Amendment 2009) contained amendments to the existing categories for capital acquisitions. The revised categories for capital acquisitions are summarised in Table 19. Table 19: Capital acquisition categories in the DPP Category Buy (Indian) Buy (Global) Buy and Make Buy and Make (Indian) Make Description Tender requests are released to Indian vendors only. Items must have a minimum of 30 per cent indigenous content if systems are being integrated by an Indian vendor. Tender requests are released to both foreign and Indian vendors. Items are acquired from a foreign vendor, followed by licensed production and indigenous manufacture in India. Tender requests are released to Indian vendors only, requiring Indian vendors to form a joint venture or establish a production arrangement with a foreign vendor, leading to licensed production and indigenous manufacture in India. This category requires at least 50 per cent indigenous content (on a cost basis). Tenders are released to Indian vendors only, for indigenous design, development and production.
Source: DPP-2008 (Amendment 2009)
Under the DPP-2008 Buy and Make category, RFPs were issued to foreign firms, who were then to enter into agreements with Indian firms for the ToT. The Defence Minister, A. K. Antony, however, has stated that the previous arrangements did not lead to sufficient developments in terms of joint ventures and co-production arrangements in India.58 Under the Buy and Make (Indian) category, RFPs are issued to Indian firms (rather than foreign firms), who then play a lead role in negotiating the terms for the ToT and co-production arrangements with foreign firms. Project proposals are required to set out the arrangements for ToT and co-production arrangements. Items produced under the Buy and Make (Indian) category must have at least 50 per cent indigenous content on a cost basis. The Buy and Make (Indian) category is designed to encourage joint ventures and co-production arrangements rather than indigenous R&D. Categorisation of projects as Buy and Make (Indian) requires the following procedures: • Defence Services Headquarters (SHQ) must prepare a Capability Definition Document outlining the acquisition requirements and current capabilities, including critical technologies to be absorbed by the Indian Partner (identified in consultation with the DRDO) • The Services Capital Acquisition Plan Categorization Higher Committee (SCAPCHC) examines the
Capability Definition Document and provides a recommendation to the DAC • The DAC decides the outcome of the project based on the SCAPCHC’s recommendation. Following categorisation as Buy and Make (Indian), the Capability Definition Document is provided to selected Indian firms, who are required to provide a proposal, including plans for development and production . Production arrangements must include details of work share and the ToT, demonstrating that the Indian partner will absorb critical technologies.59 Expediting acquisitions Fast Track Procedures (FTP) were introduced into the DPP in 2001, and further revised in the 2006 amendments. As stated in the DPP the objective of the FTP is to ‘ensure expeditious procurement for urgent operational requirements foreseen as imminent or for a situation in which a crisis emerges without prior warning.’ 60 FTP applies only to acquisitions under the Buy category, and may be used to procure additional items already in service, or new equipment. However, FTP is not available for equipment requiring field trials, which significantly limits the scope of its application. Sales can be also expedited by way of the governmentto-government Foreign Military Sales (FMS) procedures.
58 DPP ‘eases’ procedures ‘ for private sector’ in Vayu Daily, 2009 59 t least 50 per cent of A critical technologies must be in category I and II as set out in the DPP 2008. 60 inistry of Defence (2008) M , Defence Procurement Procedure, p.191
Prospects for Global Defence Export Industry in Indian Defence Market | 53
61 Modernizing Artillery ‘ Retrospect and Prospect’ in India Strategic Defence Magazine, contributed by Brig Vinod Anand (Retd), Senior Fellow at the Centre for Strategic Studies and Simulation, United Service Institution of India, New Delhi, Feb1-March 15, 2010, Vol 5, Issue 2, pp.16-18, http://www.indiastrategic.in/topstories483. htm, accessed March 2010 62 DPP ‘eases’ procedures “ for private sector” in Vayu Daily, 2009 63 pportunities in the Indian O Defence Sector, prepared for the CII by KPMG (2010) 64 inistry of Defence (2008) M , Defence Procurement Procedure, pp.41-42
FMS offers an alternative path to the Defence Procurement Procedures, which despite numerous revisions appears to be onerous and time consuming (despite the existence of the FTP).61 Implications for future acquisitions As noted above, the acquisition category is decided on a case by case basis. Therefore, it is not immediately apparent which category will apply for the future procurements identified in the four domains. However, statements from the Ministry of Defence following the 2009 amendments have indicated that the use of the new Buy and Make (Indian) category is likely to be prioritised. For example, at the National Seminar on Defence Acquisitions in late 2009, Defence Minister A.K. Antony stated that the existing Buy and Make category had not met expectations of promoting joint ventures or establishing co-production arrangements, a shortcoming that the new Buy and Make (Indian) category was intended to overcome.62
Offset contracts The offset provisions have been discussed at section 6 above. 7.2.6 Identified risks: Bureaucratic delays, lack of transparency, uncertain contracts In addition to the barriers to foreign participation in the Indian defence industry, there are also a number of risks to involvement, including high costs of sale, time delays, bureaucracy and corruption. These issues have contributed to a significant level of underspend in the key domains as set out above. Capital acquisitions are subject to a range of approval procedures. The DPP sets out the broad stages and timeframes for procurement processes, as shown in Table 20. Broad timeframes for capital acquisitions set out in the DPP indicate that procurements should take between two to three years (including field evaluation trials). 64 Given the length and extent of the procurement process, the costs of bidding for procurement contracts can be very high,
Table 20: Procurement process and timeframes63 Stage Drafting of service requirements Acceptance of Necessity Issue of RFPs Timeframe 1 month Procedures Commencement of procurement process by issuing a request for interest (RFI), including: • Services Qualitative Requirements (SQRs) • Acceptance of Necessity (AoN). Description of key requirements including: • Technical parameters • Quantity, acquisition category offset obligations, training requirements • Commercial aspects • Evaluation criteria • Evaluation of offers by Technical Evaluation Committee (TEC) • Vetting of TEC report • Field trials and approval of staff evaluations Authorities involved • • • • SHQ HQ IDS DPB Acquisition wing of MoD
• SHQ • DAC
Technical evaluations and field trials
• • • •
TEC SHQ DRDO DGQA – Director General of Quality Assurance • Acquisition wing of MoD • Technical Oversight Committee • CNC • CFA • MoD • MoF • CCS
• Involvement of technical oversight committee for procurements over USD 75million • Opening of bids and determination of L1 • Negotiations with the Contract Negotiation Committee (CNC) • Approval by the Ministry of Defence(MoD), Ministry of Finance (MoF), and Cabinet Committee on Security (CCS) • Evaluation of commercial offset offers
Signing of contract
Source: Report on opportunities in the Indian Defence Sector prepared for CII by KPMG 2010 54 | CII Indian Defence Industry Mission EUROSATORY 2010
particularly where there is a requirement for field trials to be held in India, rather than in the country of manufacture. Unforeseen delays in the tendering process can also increase costs to bidders. While the DPP sets out timeframes of around two to three years for procurements, experience has shown that the process can often take in excess of five years. For example, while a number of RFPs have been issued for the acquisition of artillery over the last decade, no significant new inductions have occurred since the 1986 acquisition of field howitzers for Swedish firm Bofors. This has been partly due to a lack of suitable vendors and issues with field trials.65 A number of acquisitions (including the Bofors deal) have also been subject to allegations of corruption. This has had the impact of reducing the number of vendors, and locking the Government in legal disputes. It is important to note that previous allegations of corruption have often involved investigations of foreign firms, and are not necessarily related to indigenous issues.66 Equipment, Test Equipment & Medical Electronics 7.2.7 Quality Assurance Procedures in defence67 The implied needs of Defence are reliability, maintainability, robustness and ease of operation. The quality assurance is required through equipment life cycle. The Directorate General of Quality Assurance (DGQA) is the governing body for the quality assurance. The primary roles of DGQA are: • quality assurance (QA) of defense stores procured from ordnance factories, PSUs (BEL, BDL, GSL, MDL, GRSE, MIDHANI, HAL, BEML etc.) • Initiate actions necessary to ensure that the armed forces get the entire range of arms, ammunition, equipment & stores of the desired quality so as to enhance the combat efficiency & effectiveness of fighting forces. The main functions of DGQA are quality assurance (QA), technical services and guidance, defect investigation, evaluation of User’s feedbacks, vendor registration and miscellaneous Directorate wise responsibility of quality assurance of equipment DQA (A): Weapons, Small Arms, Ammunition ,Instruments –Optical And Opto -Electronics DQA (L): Telecommunication Equipment , Armoured Vehicle Electronic Systems ,Electronic Warfare Equipment, Batteries & Cables, Generator Sets & Charging Sets, Counter led DQA(V): ‘B’ Vehicles, Specialist Vehicles, Tank Transporters, Earth Movers (Tracked Dozers). DQA(S): Textiles And Clothing, Footwear And Leather Stores, Petroleum Products, Drugs And Pharmaceuticals, Paints And Chemicals, Specialist Equipment, General Stores, Parachutes DQA(M&E): Military Explosives , Nodal Agency For Metallurgical Related Activities DQA(CV): Tank T-72 & Its Variants ,Tank T-90, MBT Arjun, ICV Bmp & Its Variants DQA(R&S): Radars, Missile Systems – ATGM & Sam (Other Than IGMDP), Unmanned Aerial Vehicles, Simulators,C3i Systems DQA (EE): Bridging Equipment And Water Craft, Fire Fighting Equipments, NBC Systems, All WKSP Equipments DQA (N): Electronic and electronic items, Weapons - both conventional and guided, Fire Control systems, Radars and Communication, Steel for Ship building, Naval stores DQA(WP): Diesel, Gas Turbines, Steam Turbines, Steering Gear, Stabilisers, Dg Sets ,AC & Ref Plants, Pumps, Compressors, Galleys & Stp.
65 A Commentary on the ‘ Indian Army-Artillery upgrades’ (January 2010), Religare Strategic Advisory Services, (not publicly available) 66 A Commentary on the ‘ Indian Army-Artillery upgrades’ (January 2010), Religare Strategic Advisory Services, (not publicly available) 67 olonel Vashisht presentaC tion on Quality Assurance and DGQA
Prospects for Global Defence Export Industry in Indian Defence Market | 55
Going by the surge in deals and business opportunities thus created. M/s Larsen and Toubro (L&T). development of new technologies and process. Northrop Grumman M/s Larsen and Toubro (L&T). to set up an engineering services centre and M/s Satyam Technologies forming an alliance with Northrop Grumman. and implementation of best practices and skills for global competitiveness. Signed a MoU that will expand their cooperation into new market segments and exploring mid-term and long-term strategies on the key segments of aerospace business.8 Strategic Alliances 8. September 200369 India . the Polish Chamber of National Defence Manufacturers Antrix. HCL 56 | CII Indian Defence Industry Mission EUROSATORY 2010 . L&T had signed an MoU to this effect with both Boeing and EADS during the Aero India Aerospace show at Bangalore in February 2007. In accordance with the agreement.1 Defence Memorandum Of Understanding (MOUs) in India Table 21 below gives a tentative list of MOUs in India so far entered by the Indian Government and Indian Public and private industry. Indian Institute of Science . Both Boeing and EADS have agreed to source components from L&T for their domestic and international use. Signed an MoU to source sub-systems for fighter aircraft and helicopters worth USD 1 billion. an Aerospace Network Research Consortium (ANRC) will be formed.EADS Details To cooperate in the joint marketing of military hardware.Wipro .Smith’s Group’s aerospace Unit. the aerospace market is expected to be buoyant in the coming years. Seyechelles April 200570 Signed MoU on Defence. is foraying into international and aerospace in partnership with Boeing and EADS. EADS. HCL Technologies partnering with UK’s Smith’s Group’s aerospace Unit. Table 21: Defence MOUs in India Date February 200368 Entities Involved Confederation of Indian Industry (CII) . the engineering giant. Boeing entered into an agreement with the Indian Institute of Science and two leading Indian information technology companies (MIs. The MoU is expected to benefit HAL through enhanced export opportunities. over a period of 10 years. EADS February 200772 HCL. Elbit Systems Electro Optics ELOP Ltd of Israel BEL . Lockheed Martin February 200775 February 200776 December 200777 HAL . Northrop Grumman Corporation BEL . Signed an MoU for setting up a joint venture company (JVC) for co-operation in the development. Boeing February 200773 February 200774 BEL . Signed an MoU to explore business opportunities on potential co-production avenues for domestic aerospace and defence electronics needs. September 200671 HAL .Satyam Technologies. Signed a MoU to explore business opportunities on potential co-production opportunities in support of the Indian government’s current and future aerospace and defence electronics requirements as well as Northrop Grumman’s international market requirements. the ANRC is India’s first public-private aerospace research consortium. Led by Boeing. production and marketing of thermal imaging cameras and forward looking infra red (FLIRs) for the Indian and global markets. The company has drawn up a mega plan to set up two defence and aerospace component manufacturing units with an investment of Rs 500 crore. Boeing January 200878 Boeing. Wipro Technologies and M/s HCL Technologies). Signed MoA to jointly address the commercial market for communications satellites with payload power below 4 Kw and a launch mass in the range of 2 to 3 tons.
scalable and cost efficient offshore delivery expertise of INFOTECH in India. including missiles. A-319. Signed an MoU with the US-based Textron Inc for the development of a global SEZ in Karnataka. The contract will begin to be executed in 2009 and will stretch over a period of five years.000 doors for the single aisle family of aircraft consisting of the A-318. The tie-up enables high degree of scalability. The MoU aimed at giving India the state of the art technology that would allow it to intercept any threat from ballistic missiles. US December 200883 Hindustan Aeronautics Limited and Russia's United Aircraft Corporation (UAC) Boeing . This agreement allowed both Companies to develop transfer of technologies in order to implement local contents and meet the Offset requirements of Indian MOD. it won an order worth USD 150 million for the supply of 2. advanced project management capability and customer know-how of ALTEN in Europe with an efficient. Inked a pact to jointly develop and produce a fifth generation fighter aircraft. TATA Industrial Services Limited (TISL) was instrumental in structuring the business relationship between Saab and TAML. HAL has become an important outsourcing hub for supply of doors to Airbus Industry of France. Saab Tata Advanced Materials Ltd (TAML) a Tata Group Company & Saab have signed a Business Agreement on February 12 for manufacture of structural composite components. Sikorsky February 200987 TAML. The centre would analyze present equipment and visualize future requirements. Textron. Eurocopter Quest Global. unmanned aerial vehicles. Entered into a memorandum of understanding for the attack helicopter programme. the collaboration will allow addressing and achieving some of the key objectives of EADS in Europe and from India. Airbus Industry of France Signed a memorandum of understanding with the in for developing and manufacturing a wide range of defence products.Israel Aerospace Industries (IAI) HAL .The centre would do fluid dynamics studies and other research in aircraft design. Tata Division (SED) . February 200880 February 200881 July 2008 Infotech Limited . Tata Group . Signed a formal agreement to create an exclusive partnership specifically for EADS. electronic warfare and security systems. This is in addition to the earlier orders received by HAL from the European major. The agreement is for a period of four years for manufacture of composite components for one of Saab’s commercial programs. A-320 and A-321 series. Quest Global has also signed an MoU with Sikorsky to explore the possibility of setting up a manufacturing base for components. world-class quality and quick response time to enable EADS significantly improve time to market and decrease cost. As per the terms and conditions of MoU. radars. By combining the domain expertise. Textron and Quest Global will work together to develop the manufacturing capabilities within the SEZ. Prospects for Global Defence Export Industry in Indian Defence Market | 57 .Date February 2008 79 Entities Involved Details Tata Power's Strategic Electronics Signed a MoU in the area of optronics. Signed a memorandum of understanding (MoU) to boost its missile defence system. In 2008. February 200985 February 2009 86 Infotech Enterprises . Thales Power SED and Thales agreed to cooperate in order to offer optronics solutions for Indian defense market such as the MMRCA programme and further programs on existing or future airborne platforms. Alten Group December 200882 India . Through this Memorandum of Understanding. BEL February 200984 Signed an MOU for setting up an analysis and experimentation centre in partnership with BEL in Bangalore.
HAL June 200993 November 200994 India . hydraulics and electrical systems and the manufacture and assembly of wings. and to ensure total customer satisfaction. Govt. respectively. prototype. March 200989 March 200990 BEL . space. GMR Hyderabad International Airport Limited (GHIAL). According to the terms of the MoU. repair and overhaul (MRO). Signed an MoU to fight terror. Signed a defence deal with Israel for setting up an artillery munitions factory in Bihar state. The MoU signed focuses on enhancing cooperation Brazil and Malaysia between the concerned nations and ensure a smooth flow of information pertaining to terror and the source of financing terror and money laundering. develop.Date February 2009 88 Entities Involved BEL. GHIAL and CFM would work towards the development of a new CFM56 Maintenance Training Center at the Rajiv Gandhi Airport in Hyderabad. civil applications and executive requirements. Signed a MoU under the terms of this agreement. and Ariva Group for RO based Water Purification System. of India. and manufacture of BEL’s microwave intensive products. modules and silicon wafers. January 201097 February 201098 Speck Systems Ltd. They have signed a memorandum of understanding to develop the 14-seater aircraft which can also be used as an ambulance.ISRO OFB. The objective of this MoU was to a establish a framework for the execution of the engineering services orders likely to be received by BEML through CSM’s sales and marketing efforts. Signed an MoU to explore a 250-MW joint manufacturing facility for solar photo voltaic cells. The JV is proposed to be the platform for the design. to share information with these countries on suspected money laundering activities. Deltapure Water India Ltd. in which Bharat Electronics will own 49% equity and Astra Microwave will own 51% equity. and telecommunications. Signed an MOU for launch vehicle integration. will design. for electrochromic window. Ltd. The MoU would also enable the government’s Financial Intelligence Unit (FIU). April 200991 April 2009 92 BrahMos Aerospace Ltd. manufacture. under the defence offset clause. DRDO Signed six MOUs with Jyothy Laboratories for woolcare.Sweden November 200995 CFM International (CFM) . The new training center is envisioned to mirror CFM facilities currently operating in France. January 201096 India and Governments of Russia.IMI NAL. Entered into an agreement with Israel Aerospace Industries Ltd (IAI) for manufacturing and service support of the latter’s mini and micro unmanned aerial vehicles product range in India. development. Vantage Security for explosive detection kit. which is responsible for receiving.BHEL CSM Software Pvt. the United States. entered into an agreement to develop and produce the light transport aircraft Saras. and China. processing. The new center’s planned location is in a special economic zone at the airport dedicated to maintenance. Under the Ministry of Defence. analyzing and disseminating information relating to suspect financial transactions to enforcement agencies and foreign FIUs.. and market RF and microwave products for use in defense. MGM Associates for High Altitude Pulmonary Oedema (HAPO) Chamber and GSC Glass Ltd. Israel Aerospace Industries Ltd (IAI) 58 | CII Indian Defence Industry Mission EUROSATORY 2010 . Astra Microwave Products Ltd Details Signed MoU to form a joint venture company. signed of a strategic MoU . which power the majority of Airbus A320 family aircraft and all Boeing 737s. HAL's contribution to the project is in the areas of designing landing gear. and would initially provide advanced courses in line maintenance and inspection of CFM56-5B and CFM56-7B engines. the joint venture. Signed MOU in defence that would promote bilateral co-operation in defence. BEML Limited.
h jsp?showid=103&id=4174&h=Shri%20Lakshmi%20Defence%20Solutions%20 signs%20with%20Ukrainian%20firm%20manufacture%20over%20100%20 armoured%20vehicles 101 ttp://www.html94 ttp://www. h jsp?showid=103&id=4174&h=Shri%20Lakshmi%20Defence%20Solutions%20 signs%20with%20Ukrainian%20firm%20manufacture%20over%20100%20 armoured%20vehicles 100 ttp://www.thehindu.com/2009/02/11/stories/2009021152010500. Raytheon has provided 20.php?storyid=17306 h 92 ttp://www.exchange4projects. Finmeccanica Signed an outline agreement to explore possible collaboration in the electronic warfare subsidiary Selex Galileo sector .india-defence. Signed a slew of agreements.mynews.ciol.tv/12-18-2008/30928.com/ h news/2463319/s/28409992-infotech-signs-mou-with-eurocopter 86 ttp://www.aspx?slaveid=99431 h 95 ttp://www.htm h 75 ttp://www.php?option=com_content&task=view&id=1931&Itemi h d=2 88 ttp://www.net/go/defensenews.mynews. New Delhi.prdomain.N. h htm 99 ttp://www. November 29.com/3 774> < 78 ttp://www.php?sh=VSDI&i=3944907 h 103 ttp://timesofindia. March 19.com/2008/02/18/stories/2008021854801200.html h 76 ttp://www.allvoices.-wipro.htm h 85 ttp://www.defenseworld. h asp?ArtCd=141936&Cat=C&Id=1369 89 ttp://www.encyclopedia.geo. Under the proposal.com/SEZ/ h quest-global-teams-up-with-textron-for-global-sez 87 ttp://machinist.com> < 73 he Hindustan times. DCNS India .indiamart.defenseworld.defenseworld.india-defence.com/p/articles/mi_hb3126/is_685/ai_n29296873/ h 72 www.com/2009/02/11/stories/2009021155461600.com/companies/B/BharatElectronicsLimited/newsreh leases/20072938976. Raytheon Company Details Signed an agreement for manufacturing and marketing of hundred 8x8 and 6x6 APC (Armoured Personnel Carrier) required by Indian Army for the United Nations (U.stockwatch.net/go/defensenews.in/tata-power-signs-mou-french-defense-major-2445 h 80 ttp://www.com/article-1G1-159426557/bel-inks-mous-aero.com/city/pune/WIL-signs-MoU-with-French-navalh shipbuilder/articleshow/5744748.co.) Mission.accessmylibrary. "Ukrinmash" Shri Lakshmi Defence Solutions Ltd (SLDS) .google.com/doc/1G1-107561726.com/press/pr_BEL_11FEb09.com/news-analysis/indian-polish-defenc-2170.indiatimes.in/8ak_india_defence_news/2010/01/india-signs-mou-withh russia-brazil-malaysia-to-fight-terror.com/pressrelease/defense/200702061814.defensenews. Russia Signed an MOU to manufacture critical equipment for Scorpene submarines to be used by the Indian Navy.com/pressrelease/defense/2009030420850.8ak.jsp?id=4165 h 102 ttp://www.html h 69 ttp://www.accessmylibrary.thehindu.in/search?hl=en&q=OFB+and+Israel+military+industries&m h eta=&aq=o&aqi=&aql=&oq=&gs_rfai= 93 ttp://www.cms 104 ttp://netindian.in/news_details.arcweb.html 97 ttp://www.-hcl/30108103207/0/ 79 ttp://www.000 thermal sights in more than 15 countries. including some long-pending defence accords and pacts in that would strengthen their cooperation in the areas of civil nuclear energy and space.com/article-1G1-133337825/antrix-and-eads-sign.in/News/DRDO_signs_six_MoUs_with_industry_for_tech_ h transfer_N36280. 2007 T 74 ttp://www.Date February 2010 99 Entities Involved Shri Lakshmi Defence Solutions Ltd (SLDS).Potential opportunities in this MOU include fulfilling offset requirements and contract manufacturing for export markets. Announced teaming up in a L&T led proposal to upgrade Indian Army T72 tanks.in/index.valuenotes.moneycontrol.indiaprwire.swedenabroad. Raytheon will provide infrared imaging sights and Electronics that will greatly improve target accuracy and increase overall system lethality on the battlefield for T72 tank battalions.htm h 81 he Hindu.htm h 91 ttp://www.org/abstracts/Business-international/HAL-NAL-TO-DEVELOPh SARAS-FRESENIUS-KABI-EYES-TWO-BRANDS-FOR-ACQUISITION. Walchandnagar Industries Limited (WIL).com/osd_story.html 90 ttp://www. March 2010103 March 2010104 68 ttp://news. The submarines are built by state-owned Mazgaon Docks Ltd.htm 77 www.Mumbai.html h 70 ttp://www.com/News____21610.com/press/news/cfm+signs+agreement+for+cfm56+training+c h enter+in+india/481 96 ttp://www.thehindubusinessline.2008 T 82 ttp://www.html 98 ttp://www.cfm56. February 2010100 February 2010101 February 2010102 Bharat Electronics .M/s ADCOM MILITARY INDUSTRIES Larsen & Toubro Limited (L&T) . Signed an MoU with for supplying and marketing 100 to 300 high tech armoured vehicles in the Middle East and South Africa. and are expected to join the naval fleet by 2018.com/news/news-reports/ h boeing-ties-up-with-iisc. h html 71 ttp://findarticles.net/go/defensenews.in/news/2010/03/12/0005733/ h india-russia-sign-civil-nuclear-defence-space-agreements Prospects for Global Defence Export Industry in Indian Defence Market | 59 .htm h 83 ttp://www.faqs.com/news/business/bel-bhel-plan-250-mw-solarh venture-_391021.indiaprwire.com/reports/4112 h 84 ttp://www.
Known as “Ambar Jyoti. Wipro forged a JV with GE Security of US during to jointly produce and market physical security solutions for Indian defence forces. The partnership would establish Aeronautical Design and Development Center (ADDC) that would aim at addressing the global aeronautical market. demonstrate and experiment with emerging networkenabled capabilities and applications. electronic warfare systems and other defence equipment. Boeing and Tata utilizes existing Tata manufacturing capability and also develops new supply sources throughout the Indian manufacturing and engineering communities for both commercial and defense applications. military avionics and mobile systems for military requirements. SNECMA would transfer technology to the JV.TIDCO Larsen&Toubro.GE Security TAAL.Israel Aerospace industry Wipro .Tata May 2008 108 Thales. SAAB January 2009110 February 2009111 February 2009112 March 2009113 April 2009114 May 2009115 L&T. manufacture aero parts and would exploit opportunity in the MRO.” this lab will develop. While HAL would bring its manufacturing experience in India.5 million with more investments to be pumped in as the joint development efforts would progress IT services provider Tata Consultancy Services (TCS) announced its partnership with Saab.2 Defence Joint Ventures in India Table 22 gives a list of joint ventures between foreign companies and DPSUs as well as with Indian private defence industry. It would create a single source of design and development capabilities within India. and Wipro Technologies of India. Europe's EADS Larsen & Toubro (L&T) tied up with DRDO to setup a research facility for weapons conceptualization for all commercial production undertaken by DRDO. Announced the formation of a joint venture company for defence electronics in India aim at development. radars. Tata owns 74 % while IAI owns 26 %. which would be making missiles . manufacturing and related services in the fields of electronic warfare. together announced opening of a Network Operations Centre in Gurgaon. Tata Group and Israel Aerospace industry tied up with in a joint venture in called Nova integrated systems with FDI of 50 million USD. near New Delhi. Table 22: Defence Joint Ventures in India Date July 2005 105 Entities Involved HAL . Lockheed Martin of the US. real world problems. manufacture and sell avionics systems in the Indian market. a provider in products and services catering to military and civil security. including the Medium Multi-Role Combat Aircraft competition. Manufacturing capabilities established within the joint-venture company would in later phases be leveraged across multiple Boeing programs.DRDO Dassault Systèmes. 2008109 TCS .pilotless drones . design. Samtel September . KPIT Cummins Infosystems Ltd Tata Group . signed a go-to-market partnership for joint solution & business development on ENOVIA Platform.8. the world’s largest defence manufacturing company. in addressing domestic and the global defense and civil aeronautical applications. Samtel and Thales would hold 74:26 in the venture that was started with a capital of USD 12. Lockheed Martin and Wipro will utilise cutting-edge technologies and real environmental emulation to develop net-enabled capabilities and solutions to employ against current. This involved USD 500 million of defense related aerospace component work. Dassault Systèmes (DS) the world leader for Product Lifecycle Management (PLM) software solutions and KPIT Cummins Infosystems Ltd a specialist solutions partner to global manufacturing corporations. Bangalore based Taneja Aerospace is planning to float a joint venture with Tamil Nadu owned TIDCO to create a new facility at Hosur.SNECMA of France Details HAL and SNECMA of France signed an agreement to form a JV that would be a centre for excellence for the manufacture of key components and assemblies of aero engines. Wipro Technologies of India February 2008 107 Boeing . for the establishment of Saab’s Aeronautical Design and Development Center (ADDC) in India. 60 | CII Indian Defence Industry Mission EUROSATORY 2010 . French defence and aerospace major Thales and the city-based Samtel group announced a joint venture to design. providing HAL additional export avenues and greater access to civil aerospace industry. August 2007 106 Lockheed Martin .
com/articles/boeing_tata_industries_announce_india_ h joint_venture_15820. just-in-time.jsp?id=103&name=DEFEXPO%20 h INDIA%202010 121 ttp://www.kpitcummins.com/2009/03/10174039/GE-Security-Wipro-Infotech-in. Airspace Infrastructure Pvt.php?option=com_content&task=view&id=2455&Itemi h d=2 120 ttp://www.com/corporate-releases/ h saertex-launches-saertex-kemrock-india-limited-jv-kemrock-industries-and-exports118 ttp://www. Gujarat. Airlogic Ltd Sikorsky signed a joint venture with Tata advanced Systems in to produce cabins for the S-92 helicopter and aerospace parts at Hyderabad city.in/index. The two companies also agreed to help original equipment manufacturers meet offset obligations in India that are required by defence ministry.baesystems. Airbus.net/go/defensenews.com/news/news-by-company/corporate-trends/ h LT-EADS-announce-JV-for-defence-tech/articleshow/4485612. Tata Advanced Systems Airbus.Suriname Armed Forces Agusta westland .aspx 108 ttp://www. C4ISR and a range of defence platforms expected to be acquired by India’s defence forces. Agusta westland and Tata Sons Ltd signed to create a Joint Venture with during which would be concentrating on assembly work of AW119 helicopter for the worldwide market. Ltd. November 2009118 November 2009119 Sikorsky .newindpress. February 2010120 Wipro .indianaviationnews.india-defence.ciol. an MOU was entered into by and between SAERTEX and KEMROCK to form the JV. the world leader in non-crimp glass.com/downloads/Dassault-Systemes-and-KPIT-Cumminsh Joint-Press-Release.jsp?id=4162 h 122 ttp://www.The AW119 would be proposed to Indian military Reconnaissance and Surveillance Helicopter program. repair management and spares exchange programs.CAE Wipro signed an agreement with CAE in to provide simulation-based training for areas like war gaming. (SSSI).com/money/report_hal-and-rolls-royce-announce-manufach turing-joint-venture-in-india_1365345 124 ttp://www.html 117 ttp://www.dnaindia.industryweek. the purchase of inventories associated with fleet phase-outs.com/newsportal/sci-tech/thales-samtel-form-joint-ventureh for-avionics_10046498.com/news/ h agustawestland-and-tata-sons-establish-joint-venture-company 123 ttp://www. Pvt. and accordingly.-Saab-to-setup-ADDC-in-India/10908110181/0/ 110 ttp://www.com> < 107 ttp://www.agustawestland.defenseworld. HAL April 2010124 Mahindra & Mahindra Ltd . SSSI will also offer sale/leaseback of component inventories. 116 ttp://www. and localized. Mahindra & Mahindra Ltd and BAE forged a JV to develop strike vehicles for Indian Army. with a production rate of 30 a year and the first aircraft potentially ready for delivery in 2011.mydigitalfc.Airspace Infrastructure Pvt.cms .com/News/News-Reports/ h TCS.net/go/defensenews. carbon and aramide fabrics.html Prospects for Global Defence Export Industry in Indian Defence Market | 61 February 2010121 February 2010122 BEL .com/379/iaitata-group-joint-venture-kick-starts/ h 113 ttp://www. Ltd and Airlogic Ltd have established a new spare parts and logistics support joint venture - Spares Support Solutions India.html h 114 ttp://stockmarketing.jsp?id=4175 h 119 ttp://machinist.net/go/show.thaindian. Rolls Royce and HAL forged a 50:50 joint venture to manufacture compressor shroud rings and construction of a new production facility that would incorporate the latest in modern manufacturing techniques. distribution.defenseworld.com> < 106 www. CAE SAERTEX .in/news/taneja-aerospace-likely-to-float-jv-with-tidco/5861/ h 115 ttp://economictimes. support to both airlines and MROs in India. SAERTEX. KEMROCK Details HAL and Canada’s CAE jointly set up a new helicopter training centre.net/careers/2007/08/hal-canadas-cae-in-jv-forh pilot-school-in-blore.indiatimes. BEL signed a contract with Suriname Armed forces for delivery of coastal communication system network server. Vadodara.Date June 2009 October 2009117 116 Entities Involved HAL .livemint.com/reports/4181 h 111 ttp://www.defenseworld.com/Newsroom/NewsReleases/ h autoGen_1091030101550.pdf 112 ttp://indiadefenceonline. The JV is split 26% between Airbus and 37% each for the other partners. Airspace Infrastructure has expertise in bonded warehousing and compliance with the Indian customs regime while Airlogic specializes in component trading. planned to set up a 50:50 Joint Venture company in India with KEMROCK Industries and Exports Limited.html 109 ttp://www.wipro. would set up a new facility for producing various components for Indian and global aeronautical industry.Tata Sons Ltd April 2010123 Rolls Royce . The joint venture named as SAERTEX-KEMROCK INDIA LIMITED. BAE 105 www. The joint venture will maintain an inventory of rotable components used on all types of Airbus commercial aircraft by operators in India for outright sale. M&M owns 74 % equity and BAE owns 26% . exchange and customized pooling arrangements. Ltd .
Almot. where the total cost of the programme is USD 138 million (Rs. The beneficiaries of the offset are Tata. The beneficiary companies are Wartsila India. BEL. in 2008. Electric Opto Fire Control System and their integration on board the fleet tanker. etc.5 million (Rs. The vendor has agreed to offsets of USD300 million (Rs.6 5 - 82. Bharat Electronics Ltd. Table 23 Tentative list of offset contracts agreed to date. placed an order worth 14. 4.6 crore). 400 crore) with offset worth USD 32. Wipro Ltd. 165. The medium lift helicopters for the IAF. The estimated price is USD100 million (Rs.5 million (Rs. Offset contracts have been signed with two Indian firms for purchase of components.5 330. The offset contracts are being placed with L&T.Crore) 1 ELTA (Israel) 10 Feb 2009 225 900 30% 100 2 Not disclosed - 100 400 30% 130 3 RAC MiG (Russia) 10 March 2008 1000 4000 30% 1200 4 Rosonboron export (Russia) HAL (likely to tie up with BAe) (United Kingdom) 6 Dec 2008 138 552 30% 165. HAL. 130 crore). The Jaguar upgrade valued at USD 82. 552 crore) and the offset value is USD 41. L&T. L&T. Velgear and Johnson Pumps.Crore) Minimum offset % Offset amount IN (Rs. HCL Technologies Ltd. Versatile Communication System. Alpha Technologies are beneficiaries. Dynamatic Technologies ltd and Macmet Technologies Ltd. Fincantieri. senior BEL executives stated that as part of the offsets for the first fleet tanker. Date Contract value in US$millions Contract value in IN(Rs. a unit of Canada’s aerospace simulator maker CAE Inc. BDL.1 billion (Rs.8. According to Defenseworld. Contract holder Details of contract A contract worth USD 225 million (Rs. Hindustan Aeronautics Ltd (HAL). The MIG-29 upgrade contract worth USD 1 billion (Rs.4 million (Rs. OFB. ESM System.000 crore) has been awarded to a Russian manufacturer.6 30% 81 6 Boeing (United States) - 2100 8400 30% 2400 7 Fincantieri (Italy) 5 June 2008 1300 30% 390 62 | CII Indian Defence Industry Mission EUROSATORY 2010 . 8. No.400 crore) contract in Jan09 to supply eight P-8I reconnaissance planes to the Indian Navy. 900 crore) for supplying radars by ELTA. BEL also expects a follow on order in FY 2009-2010 for the second fleet tanker.net in May 2009. 330.6 crore) and the offset value is to be USD 20. 1200 crore) and the Base Repair Depots of IAF. from Astra Microwave Hyderabad and Larsen & Toubro (L&T) securing a contract worth USD 25 million Contract for fleet Refuelling Tankers for Navy. BEL will implement this order in 2009.3 Defence Offsets in India So far.25 million Boeing has planned for offset in aerospace structures and aviation electronics products worth at least USD 600 million from seven firms in India as part of offsets against winning a USD2.3M euros for the supply of Composite Communication System. offset contracts of about USD 2 billion have been entered into by Defence contractors and expectation is to reach to USD 10 billion by 2011.
drones. radars.677. where the IAI will make offsetting purchases from Tata.000 of the latest version of its Barak surface-to-air missile for the Indian Navy at an estimated price tag of USUSD1. The estimated March value of the aircraft along with associated ground support equipment. electronic warfare systems and homeland security systems – all areas of Israeli defense industry specialization.No.8 9 M/s Rafael (Israel) 12 Dec 2008 260 1040 30% 312 10 Rosoboron export (Russia) - 700 2800 30% 840 11 Lockheed Martin (United States) The Indian Government has signed a Letter of Offer & Acceptance with the US Government for the procurement of 18 six C-130J-30 aircraft for the Indian Air Force.The delivery of these aircraft is likely to be completed by December 2011 1000 4000 30% 1200 Source: Various websites Prospects for Global Defence Export Industry in Indian Defence Market | 63 .Crore) 8 Israel Aerospace Industries (Israel) 30 April 2009 1400 5600 30% 1866. Israel for the supply of the SPYDER (Surface-to-air Python and Derby) low level quick reaction missile system (LLQRM) for the Indian Air Force. Contract holder Details of contract the Israel Aerospace Industries (IAI) has agreed to provide 2.4 billion. a third of the value of the deal will be spent or invested in India. involving missiles. ground handling equipment and role equipment 2008 is USD962. with deliveries running through early 2011 to August 2012. Reports in the media over the previous three months have suggested that the USD260 million contract would involve the supply of 18 SPYDER systems.5 generation fighters considered as one of the most advanced in the World at present Date Contract value in US$millions Contract value in IN(Rs. Under the terms of the agreement. This will be a long haul version. Rosoboronexport has signed a contract to upgrade Indian Air Force Sukhoi 30 MKI Fighter Jets at a cost of USD 700 million as per agency report by Interfax. The Indian ministry of defence has confirmed that it has signed a contract with M/s Rafael. The Mumbai-based multinational’s wholly owned subsidiary Tata Advanced Systems (TASL) is forging a direct partnership relationship with the IAI that is expected to be wide-ranging. India is scheduled to acquire 230 Su 30 MKI 4.454.Crore) Minimum offset % Offset amount IN (Rs.
There are a number of factors underlying this program. The challenge of satisfying a new and demanding customer. A big problem for local firms is the level of investment that is required to participate in the Foreign defence industry when the workload can often reflect a feast or famine cycle. There are also strong potential benefits from involvement in overseas markets in terms of capability. Overall. Participation in a joint venture in a larger defence market overseas can also bring benefits in terms of economies of scale. particularly from transnational corporations offering state of the art technology. including: • India’s growing economic strength.20 billion in 2015. 64 | CII Indian Defence Industry Mission EUROSATORY 2010 . an increase of nearly 15 per cent. Apart from the obvious benefits of additional revenue and profitability. including Foreign companies. India is also seeking to acquire sophisticated defence electronics and communications systems.9 Conclusion Substantial benefits are to be derived if foreign industry can become more involved in overseas defence markets. which allows the development of a substantial modern defence force while keeping defence expenditure below 2. can bring private benefits to the firm concerned but also broader benefits to the global defence companies as the spin-offs are brought home.5 per cent of GDP • The fact that territorial disputes with two powerful neighbouring countries (China and Pakistan) that are nuclear-armed and developing closer relations with one another opens up the possibility of a war on two fronts • The demonstration in recent disputes that much of India’s defence equipment is obsolescent and that the Revolution in Military Affairs passed India by. movement down the learning curve and also some potential ToT and knowhow from related firms operating in the overseas market concerned. This not only causes considerable disadvantages for the local firms themselves. one major advantage concerns the potential for smoothing out the workload.1 The opportunity India is embarking on a very substantial program to expand and upgrade its defence force. It is important. 9. the acquisitions budget will grow from around USD 17 billion in 2011 to USD 19. 9. including the intention to equip infantry soldiers (and the Indian Army can field over 30 infantry divisions) with advanced equipment under the Future Infantry Soldier as a System project. but also adds to Defence’s costs in seeking to sustain the industry in pursuit of self-reliance. India is seeking to acquire some of the most globally advanced platforms and systems for its Navy (SLBM nuclear submarines and aircraft carriers). India’s substantial defence expansion India is seeking to acquire some of the most globally advanced platforms and systems for its Navy (SLBM nuclear submarines and aircraft carriers). suggesting that a major ‘catch-up’ effort is required. however. to recognise the very considerable challenges involved in winning defence work in India. either through exports or foreign direct investment. Clearly an expansion such as this offers considerable opportunities to the international defence industry. This translates into a major procurement program over the next few years. Army (large numbers of T-90 main battle tanks and other assets to equip eight divisional sized battlegroups) and Air Force (Su-30 advanced fighter aircraft and a follow-up state of the art air superiority fighters in about 2017). perhaps by refining the particular product or developing new and more advanced applications.2 Some challenges Competition The first challenge facing foreign firms is competition. Army (large numbers of T-90 main battle tanks and other assets to equip eight divisional sized battlegroups) and Air Force (Su-30 advanced fighter aircraft and a follow-up state of the art air superiority fighters in about 2017).
often backing for the bid from the defence force in the exporting country can be influential in its own right. Despite this rationalisation. While. Government support is particularly important. offsets and licensing As shown in the body of the report. that they were unsuccessful for reasons that are not apparent.is in stark contrast with what is occurring among the NATO (and ex-Warsaw Pact) countries where the end of the Cold War twenty years ago brought about a steep decline in defence expenditure. its meaning seems to be Prospects for Global Defence Export Industry in Indian Defence Market | 65 . There is every prospect that foreign companies could spend a great deal of time and money working up a bid only to be advised. much later. In India. India is moving towards a strong ‘buy local’ policy. Competition in markets for defence equipment also does not take place on a level playing field. the fact that one country refuses to sell one product to India while another country has agreed to supply the same product could provide a relative advantage to that another country’s firm in the defence industry. Many of the foreign defence companies generally suffer from a lack of scale and may have difficulty in competing with other non-indigenous players with much higher levels of production and a more advantageous position on the learning curve. with their much cheaper labour rates (even for software engineers) and tax advantages. for example. India has a policy of self-reliance in defence. aimed at achieving an indigenous share of total expenditure of 70 per cent. A strong relationship between a foreign country and India would do no harm in fostering relationships between defence industries in the two countries. many defence contractors in western countries (and presumably in the former Soviet Union as well) are operating well below capacity. While companies will want to seek some early signals in regard to their perceived qualifications to be selected as a contractor. This does not have to be financial support. The process can be extremely long and the basis on which tenders are eventually awarded is often not at all clear. Any marketing strategy for the Foreign defence industry in India would need to take account of the fact that relations between the two countries have been subject to some recent headwinds. Buy local. Unless they have a unique capability. at the same time they need to ensure they have strict governance protocols in place to avoid any suggestion of corruption. It is inevitable that relations between governments are also important in these areas. this is a phrase capable of different interpretations. they will also have great difficulty competing on price with Indian companies. If senior officers from the Royal Foreign Navy. this is likely to have some influence on naval officers in the purchasing country. demonstrate enthusiasm for a particular Foreign-made sensor. It also brought about a shake-out and rationalisation in defence industries in those countries. Tendering process It appears that the tendering process for defence equipment in India is not highly transparent. For example.
On the one hand. Indian industry has designed and built some highly sophisticated weapons systems. it is also evident that there will be a high level of reliance on overseas interests to supply the necessary technology in a number of areas. in general they have not been successful. While these projects were clearly over ambitious. by establishing offset requirements for foreign defence purchases of at least 30 per cent and limiting foreign investment in a project to 26 per cent. while some of the goals have been achieved for these projects. a reduction in the number of platforms or systems to be acquired or even cancellation of the project. but they also can involve the transfer of significant proprietary technology. This may involve significant risks. If that hurdle can be overcome. In both these projects. in part. Yet in the context of India’s aspirations in terms of self-reliance. either as a reciprocal purchaser of Indian equipment and components under the offsets regime or as a minority investor in a joint venture. producing and integrating highly sophisticated equipment. the Indian Army is acquiring the latest T-90 tanks to equip its front line armoured brigades in the eight battlegroups. Other Countries will necessarily be a niche player here. Because of the buy local policy. Yet the potential rewards for foreign companies are significant. On the other hand. being a niche player may be no bad thing. Foreign companies entering such arrangements will need to ensure they have secure safeguards in terms of their intellectual property protection. there will be pressure on foreign companies supplying significant items of equipment and platforms to enter licensing agreements so that local firms can manufacture the product in India under licence. The Tejas has evolved from an original requirement dating from over half a century ago and still is not fit for front line deployment. While it is clear that India is seeking a high level of selfsufficiency in delivering its ambitious defence re-equipment and expansion program. More recently. Indian industry has had the responsibility for designing. The defence sector has traditionally been government owned in India and the level of efficiency is questionable. Although the private sector has now begun to take its place in the defence industry alongside the traditional government-owned businesses. including advanced composites. This is ambitious and is operationalised. the forward acquisition plan reflects a similar level of ambition. The requirement for the Arjun dates from nearly forty years ago and in the course of the project the problems with the Arjun meant that large numbers of T-72s had to be acquired from Russia. 66 | CII Indian Defence Industry Mission EUROSATORY 2010 . Such arrangements can provide valuable revenue and other benefits to the licensor. their level of competence remains unclear. while around 120 Arjun tanks will be deployed. Two that immediately come to mind are the Tejas light fighter aircraft and the Arjun main battle tank. 9. any contract to supply equipment to India will involve working closely with the local industry. This may well contain significant risks in terms of efficient and timely delivery of projects.3 India: a potential market for the world? The challenges involved in participation in the Indian defence market should not be under-estimated. By their very nature. niche players are not threatening or overbearing and are more willing than the big transnational corporations to work closely with local industry. they will necessarily have to become involved with the Indian industry. It may involve delays. The export countries which already dominate the global market can supply complete platforms or systems.closer to self-sufficiency. electronic systems and a main tank gun. If foreign firms are to supply defence equipment to India. They also tend to be more aware of the reciprocal benefits of working overseas and may be more willing to incorporate Indian firms into their supply chains. This suggests first of all that it would be difficult for any foreign firm without a ‘must have’ capability of piece of equipment to win a contract in India.
DIP (Defence Industry Partnership Meet). CII has submitted several policy recommendations to the Government of India for promoting contribution and participation of Indian Industry in defence production.10 A brief about CII CII has been actively partnering with the Ministry of Defence. Poland. CII’s Defence Division strives to forge industry initiatives to strengthen the Indian Defence Sector. This was an epoch making event. Polish Chamber of National Defence Manufacturers. By representing the interests of the Indian Industry both public and private sector as well as the end users – The Armed Forces. CII helps the Indian Defence Industry to promote their contribution in Indian Defence procurement by helping them to identify the opportunities that exist in Defence. Subsequent to this. NIP (Navy Industry Partnership Meet). CII had also submitted a ‘Paper’ to the Government of India on a suggested mechanism for awarding Licence for Defence Production. UK. The United States India Business Council (USIBC). Prospects for Global Defence Export Industry in Indian Defence Market | 67 . These events also provide a platform for industry to introduce their capabilities in terms of offering new products and technologies to the Indian Defence. This would in turn increase defence exports of the country. Defence IT Convention to name a few. i. CII had formed the Defence Division in 1993 to catalyse change in the Defence sector by pursuing the Government to liberalise Defence Production and by initiating the process of partnering with the Defence establishments in organising interactive meetings with the end users. Russia. DEFCOM (Defence Communications Seminar). South Africa and Israel. As a fall out of this meeting 6 Joint task forces. One of the major recommendations of the Task Forces was that private sector should be given an important role in the Defence production of the country. CII Defence Events provide excellent platforms for Industry to understand the future requirements of the Armed Forces. CII had the CEOs meeting with the Ministry of Defence on the 18th June 1998. CII Defence Division has been committed to working in the areas of steering policy formulation. CII has been recognised as the voice of Indian Defence Industry by the Government of India. UK. Realising the importance of harnessing the technologies developed within the country. This would bring about competition and help provide quality equipment to the armed forces at the right time and at the right price. CII’s initiatives in the area of policy reforms really got a boost when. Joint Ventures and Export CII provides international exposure to Indian Defence Industry by organising inward and outward industry missions. Association of the Defence Industry of the Slovak Republish (ADISR) and Association of Italian Defence and Aerospace (AIDA). CII has also been a pioneer in organising Interactive sessions with the Defence Research and Development Organisation to enlarge the role of Private sector in Defence R&D. It has also received international delegation from USA. In continuation. The meeting provided an opportunity for the Industry to interact with the senior officials of the Ministry of Defence (MoD) and DRDO. CII has institutionalised several events with the Armed Forces such as AIP (Army Industry Partnership). the Armed Forces. CII organises several sector focussed interactive session with the Armed Forces to enable the industry to identify their requirements. Slovakia etc. 2002. It has organised Defence Industry Mission to USA. which had never previously happened in the history of India. chaired by serving officers from the armed forces / Ministry of Defence and co-chaired by CII were formed. Armed Forces and DRDO in promoting Industry’s participation in Defence production.e. Artillery Technology Seminar. International Linkages for Technology Cooperation. South Africa. The Committee has signed Memorandum of Understanding with the Defence Manufacturers Association of UK (DMA). The objective of this Division is to “Establish a strong partnership between Defence Services & Industry and enlarge the role and scope of Indian Industry in Defence Production for mutual benefit and enhance the National Security”. defence market development / trade promotion and formation of international joint ventures / technology transfers. 2004 and 2006. A major partnership with the Ministry of Defence has been the organisation of the Defexpo India (Asia’s largest Land and Naval Systems exhibition) in 1999.
guided missiles. Talent Management.11 A brief about Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu. 68 | CII Indian Defence Industry Mission EUROSATORY 2010 . Corporate Finance. space vehicles and shipbuilding. including Supply Chain Strategy. and enriching career opportunities. Customer Support and Sustainment (CS&S). experience. They enjoy an environment of continuous learning. and making a positive impact in their communities. manufacturing and our other commercial industry practices. including commercial and military aircraft. Deloitte’s professionals are dedicated to strengthening corporate responsibility. We focus on the top issues facing the industry. Aerospace and defense.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms Deloitte provides audit. The Deloitte Global Aerospace & Defense (A&D) industry group serves all sectors in the A&D industry. challenging experiences. tax.deloitte. and strength from cultural diversity. Deloitte has a strong defense practice that draws on best practices. and Tax Strategies. each of which is a legally separate and independent entity. Deloitte’s professionals are unified by a collaborative culture that fosters integrity. consulting and financial advisory services to public and private clients spanning multiple industries. Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. outstanding value to markets and clients. and its network of member firms. a Swiss Verein. Mid-market ERP Solutions. engines and propulsions systems. building public trust. Deloitte’s more than 168. Program Management. commitment to each other. Please see www. With a globally connected network of member firms in more than 140 countries.000 professionals are committed to becoming the standard of excellence.
The process of rationalization of tax administration is continuing in India with the Government intending to implement New Direct Tax Code (DTC) and new Goods and Services Tax (GST) w. generally a liaison office is not liable to tax in India. Therefore. a foreign company may supply goods. A domestic company means an Indian company or other company.5% (where income exceeds Rs. being a defence sector. plant & machinery to Indian parties from its home country. land revenue and tax on professions are levied by the State Governments. central excise and service tax. However. State Excise. income of a project office would also be taxable at the rate applicable to the foreign companies (effective tax rate is 42. Branch Office (BO) Prior approval of RBI is required for establishing BO. LO/BO/PO needs registration with registrar of companies. however. Therefore. under the tax treaties. where a foreign entity has a ‘business connection’ in India. then tax liability may not arise in India. Further. The above would be a case where sale of plant & machinery is affected outside India. is regarded as a foreign company. Project Office (PO) Although PO does not need prior approval of RBI. which is not a domestic company.23%125 on net profits) which is higher than the rate of tax applicable to companies incorporated in India (effective tax rate is 33. Generally. The computation of the profit of the project office does involve complexities such as the base on which the tax is leviable. there are certain restrictions on allocation of head office expenditure. Draft DTC has proposed tax rate at 25% for foreign companies and additional tax of 15% as ‘Branch profits tax’. and the payment for such supply is received outside India. The tax rates have been rationalized and tax laws have been simplified resulting in better compliance. Defence related requests for BO need Government’s inter-ministerial consultation. The Central Government levies taxes on income. Value Added Tax (VAT). Therefore. ease of tax payment and better enforcement. A PO can be established to execute a specific project. the title in goods is transferred in favour of the Indian buyer outside India. Defence related requests for PO need government’s inter-ministerial consultation. a branch would be considered as a Permanent establishment (PE) of the foreign company. BO can carry on full-fledged business activities (except not permitted activities viz. In computing the income of the branch. A foreign company is taxable in India on the income received or income accrued/ arising in India. 125 or foreign companiesF surcharge @ 2. 2011. which declares and pays dividends in India. tax is payable on the income arising from operations in India.12 Annexure Quick overview of taxation and regulatory for a foreign company in Defence industry India has a well-developed tax structure with clearly demarcated authority between the Central and State Governments and local bodies. However. a company registered outside India.e. drainage etc. Requlatory and Income tax overview Foreign Company A foreign company is a company. income tax department etc. approval from RBI may be required.23% on net profits). manufacturing). It is also required to fulfil annual compliances with RBI and ROC. Where the supply is affected in a manner that no income therefrom is received or accrues in India. Indian taxation system has undergone tremendous reforms during the last 10-15 years.f. For instance. In such a case. effective tax rate is 42. 126 or domestic companies F surcharge @ 7. octroi and for utilities like water supply. Defence related requests for LO need Government’s inter-ministerial consultation. since a branch office is an extension of its head office. A foreign enterprise may carry on its business operations in Indian in any of the following manner: • Through a Liaison office in India • Through a branch set up in India • Through a Project office in India • Without any physical presence in India Liaison Office (LO) Prior approval of Reserve Bank of India (RBI) is required for establishing LO. Draft DTC has proposed tax rate at 25% for domestic companies Prospects for Global Defence Export Industry in Indian Defence Market | 69 . 10 million) and education cess @2% and secondary and higher education cess @1%). Business Operations without Physical Presence in India A foreign enterprise may operate in India without any actual physical presence in India. stamp duty. Its role is usually restricted to collection and dissemination of information on behalf of the foreign entity. customs duties. A project office would not be considered a legal entity separate from its parent company.e.5% (where income exceeds Rs. Local bodies are empowered to levy tax on properties. Then there are also levies on taxes such as surcharge and education cess which is the collection by the Government to meet specific objective. April 1.22%126 on net profits). 10 million) and education cess @2% and secondary and higher education cess @1%). the business income accruing in India would be taxable at the rate of tax applicable to the foreign companies (i. income from such transaction may not be taxable in India. etc. LO is not permitted to carry on commercial activities in India.
The words ‘ownership’ and ‘control’ have also been defined in the said press note. buy-back. capital reduction. a Domestic Company is liable to pay DDT @ 15% on amount distributed as dividends. capital restructuring. Dividend Distribution Tax (DDT) In addition to the normal income tax. the JV is considered as a ‘domestic company’. a mechanism has been provided whereby if the entire income of a non-resident is not believed to be taxable in India. Where a foreign company makes foreign direct investment in a JV in India. capital gains from sale of capital assets/immovable properties situated in India are generally taxable in India. withholding tax rates are lower as compared to the tax rates under the domestic tax laws of India. plus surcharge and education cess (aggregate to 10. the effective rate of tax is 16. April 1. 1961 (ITA). under the Tax Treaty mechanism. The effective rate of tax is 33. The withholding tax rates vary depending upon the nature of payments like Royalties.56%) or a lower withholding tax rate under the applicable tax treaty. Remittances LO/BO/PO can remit surplus funds to foreign company subject to approvals from RBI and tax department Whereas cash remittance by the JV to the foreign JV partner company can be made through dividend pay-outs. exit through transfer of shares. Under the ITA. Capital Gains Gain arising from transfer of a capital asset is liable to capital gains tax in India. generally. Generally. The guidelines for licensing were issued in Press Note No. The FIPB issued press note 2 of 2009 series on the guidelines for calculation of total foreign investment whereby it has provided inter-alia that JV should be owned and controlled by resident citizens and Indian companies which are owned and controlled by resident Indian citizens. Supply of Technical Know-How/Services Income from supply of technical know-how or technical services to Indian parties is taxable in India either as ‘Royalty’ or as ‘Fee for technical services (FTS)’ as defined under the ITA. On the other hand. 2 of 2002.The normal business income is computed by reducing from the gross business receipts. expenses incurred in earning such income subject to certain restrictions prescribed under the Income-tax Act. Like royalty. FTS. 20% (effective rate 21. 4 of 2001. the interest income is taxed at the reduced rate of 10% or 15%. managerial or consultancy services including supply of technical personnel. Joint venture Company (JV) The Investment in defence production was liberalized in May 2001. Withholding tax An Indian resident is obliged to withhold tax while making payment to a foreign party. royalty is taxable @ 10% on gross payment. Under Tax Treaties.12%). viz. subject to licensing for production. Accordingly.vide Press Note No.e.61%.f. interest. FTS is also taxable @ 10% on gross basis in certain cases or a lower withholding tax rate under the applicable tax treaty. whereas 26% is for foreign direct investment (with FIPB approval) in an Indian joint venture company (JV). A new provision has been inserted recently w. The income of JV is taxable at the rate applicable for domestic companies. interest payments. receipt of dividend is fully exempt from tax in the hands of the recipient shareholders. Interest Income Interest Income earned in India is taxable in India at the normal tax rate applicable to foreign entities.22%. Thus. . Under the domestic tax laws of India. Foreign companies are not required to pay DDT. Automatic approval for remittances under foreign technology agreements has been recently liberalized. the payer or the payee of the income can obtain a lower rate withholding order from the tax authorities. Most of the tax treaties signed by India provide for taxation of capital gains as per domestic tax laws of the respective countries. etc. industrial commercial or scientific equipments. The Indian domestic private sector was allowed 100 % participation in defence production. FTS is defined to mean consideration for provision of any technical. The management of the JV should be in Indian hands with majority representation on the Board as well as the Chief Executive of the company being resident Indians. royalty/fee for technical services. The definition of royalty covers payment for the use of or 70 | CII Indian Defence Industry Mission EUROSATORY 2010 the right to use.
• Expenditure on Scientific Research is allowed at: – 00% deduction for any revenue expenditure on 1 scientific research – 00% deduction for capital expenditure (other than 1 land) on scientific research – 00% weighted deduction for in-house scientific 2 research available to companies engaged in manufacturing/ production of any goods (except goods such as liquor. 18% of the book profits is regarded as their tax liability. • India has entered into comprehensive treaties for avoidance of double taxation with over 70 countries Prospects for Global Defence Export Industry in Indian Defence Market | 71 . Book profits mean profits as per profit and loss account prepared in accordance with the Indian Companies Act. Central Board of Direct Taxes (CBDT) empowered to formulate safe harbour rules. subject to certain specified adjustments. • In the draft DTC. On failure to furnish PAN. cosmetics etc. tobacco. • Units set up in SEZ eligible for 100% tax holiday on profits on exports for 5 years and 50% tax holiday for the next 10 years. Draft DTC does not allow area-based exemptions. For Foreign companies. which will be grandfathered. the effective rate of MAT is 19. Thus. taxpayers are allowed credit in respect of MAT paid on or after 1 April 2006 to the extent of difference between MAT paid and tax payable on total income computed as per other provisions of the ITA. Tax holiday available to an undertaking manufacturing eligible goods in specified areas to be discontinued without affecting tax payers currently enjoying such incentives. Advance Ruling • Taxpayers can approach the Authority for Advance Ruling to determine income-tax aspects of any proposed or current transactions with the non-resident. whereby any person whose receipts are subject to withholding tax under the ITA. There are strict penalties for non-compliance. • Export Oriented Units (EOUs)/Electronic Hardware Technology Parks (EHTPs)/Software Technology Parks (STPs) eligible for deduction of 90% of export profits for 10 years (up to March 31 2011). effective rate of minimum Alternate Tax (MAT) for Domestic companies is 19. taxable profits of the business of developing SEZ shall be the gross income from the business carried on during the financial year as reduced by capital and revenue expenditure No tax holiday available to units in SEZ/ EOU/ EHTP/ STP under the Code • Companies manufacturing eligible goods in North Eastern States (up to 31st March 2017) eligible for 100% tax holiday for 10 years and in Himachal Pradesh and Uttaranchal (up to March 2012) eligible for 100% tax holiday available for 5 years and 30% thereafter.00% of the book profits.93% of the book profits.2010. • Rate of tax at 20% Minimum Alternate Tax Where income tax payable by corporate taxpayers is less than 18% of the book profits. Further. • Exemption available on royalty/fees for technical services received by a notified foreign company under an agreement with the Government to provide services in or outside India in projects connected with the security of India. • As a measure of simplification. Corporate tax Incentives relevant to this industry • Developers and co-developers of Special Economic Zone (SEZ) entitled to 100% tax holiday. Draft DTC has proposed MAT at 2% of the ‘gross assets’ of the company and eliminatingcarry forward of MAT credit. • Rates in force as specified under the Finance Act or under relevant tax treaties. there is a proposal to introduce advance pricing agreements with regard to the International transactions between associated enterprises. Detailed Safe harbour rules are still to be prescribed. Under the DTC. MAT credit can be set off against the tax payable in the year in which taxpayer is liable to pay tax under normal provisions of the ITA.) – 25% of deduction on payments for research activi1 ties to an approved Indian company in scientific R&D Transfer Pricing • The Indian transfer pricing regulations require international transactions with associated enterprises to be at arm’s length price and further supported with prescribed documentation. It can be carried forward for 10 years from the AY it becomes allowable. should furnish PAN to the person responsible for such withholding tax. higher of the following to be deducted as tax at source: • Rate of tax specified in ITA.
Service Tax (including Cenvat Credit) Laws • Specified services are subject to service tax and liability to pay the same is on service provider. Otherwise. R&D Cess can be adjusted against service tax liability. in view of certain benefits available. use or sale. The rate of VAT typically ranges between 4% to 14. Research and development (R&D) Cess • Research and Development (R&D) Cess @ 5% is applicable on import of technology into India by an industrial concern. Customs duty exemption is available on imports for aerospace and defense purposes subject to the fulfillment of specified conditions. Tax implications under the domestic laws could be mitigated by resorting to a tax treaty. In light of above-mentioned structure of indirect taxes in India./ engineering services. • Presently. However. drawings etc. is provided by way of refund. Indirect Tax Overview Customs Laws Effective rate of customs duty payable by importer on import of goods would be 26. appropriate review of the transactions could result in tax-optimization. excise duty exemption benefit is restricted to notified institutions only such as DPSUs and OFBs. etc. • The exemption to the taxable services provided to SEZ consumed partially or wholly outside the SEZ.14 • Export of manufactured goods is subject to SCOMET guidelines. Value Added Tax (‘VAT’)/ CST Laws • Inter-State sale of goods is subject to levy of CST.and limited agreements with 18 countries. including under the Foreign Trade Policy.3% (inclusive of cess). No service tax leviable on services provided to SEZ wholly consumed within the SEZ. Services transactions between associated enterprises would be subjected to service tax on book entry basis instead of receipt / payment basis.85% based on peak rate of customs duty. • Alternative Dispute Resolution Mechanism (ADRM) With a view to encourage the growth of foreign investment in India.5%. • ADRM mandatory for eligible taxpayers. intraState sale of goods is subject to levy of VAT. Entry Tax/ Octroi • The States. • Service tax applicable on input services like payment for 72 | CII Indian Defence Industry Mission EUROSATORY 2010 • • • technical know-how. octroi. Special Economic Zone (‘SEZ’) Incentives • Indirect tax incentives available to SEZ units for their authorized operations. on entry of goods in the designated areas for the purpose of consumption. • No general/specific exemptions/concessions available on sale of goods made to defence Each State VAT legislation should be examined. liability to pay service tax shifts to the service recipient located in India. Foreign Trade Policy 2009 . VAT rate of the originating State would apply. Local authorities and Municipal corporations also levy other local taxes such as entry tax.etc. in certain cases. For few services including services received from outside India. a dispute resolution mechanism has been recently introduced to facilitate expeditious resolution of disputes on a fast track basis. • CST rate is 2% against submission of prescribed statutory form by the purchaser. . licensing of intellectual property rights(‘IPRs’) in relation to equipments.3% (inclusive of cess). Service tax to be paid by Indian joint venture as recipient of taxable service by virtue of reverse charge mechanism Set off of such service tax paid could be availed against output excise duty. Central Excise Laws • Effective excise duty rate on manufacturing activity is 10. • DRP directions binding on the Assessing officer. Salient features of ADRM are: • Foreign companies and cases involving transfer pricing disputes eligible for ADRM. it could be stated that Joint ventures formed for offset purpose incur a number of indirect tax obligations. Service tax rate is 10.
13 Abbreviations Abbreviations Abbreviations AAP ADGES ALH AOPVs ASW ATV AVD BDL BEL BEML BFSR-SR CAGR CCS CNC DAC DGAQA DGQA DPB DPP DPSU DQA(A) DQA(CV) DQA(EE) DQA(L) DQA(M&E) DQA(N) DQA(R&S) DQA(S) DQA(V) DQA(WP) DRDO DWT EADS ESO FARP FDI Expansion Annual Acquisition Plan Air Defence Ground Environment System Advanced Light Helicopter Arctic Offshore Patrol Vessels Anti-submarine warfare Advanced Technology Vessel Avalanche Victim Detector Bharat Dynamics Limited Bharat Electronics Limited Bharat Earth Movers Ltd Battle Field Surveillance Radar - Short Range Compound Average Growth Rate Cabinet Committee on Security Commercial Negotiation Committee Defence Acquisition Council Directorate General of Aeronautical Quality Assurance Directorate General of Quality Assurance Defence Procurement Board Defence Procurement Procedure. 2008 Defence Public Sector Undertaking Directorate of Quality Assurance (Armaments) Directorate of Quality Assurance ( Combat Vehicles) Directorate of Quality Assurance(Engineering Equipment) Directorate of Quality Assurance (Electronics) Directorate of Quality Assurance (Metals and Explosives) Directorate of Quality Assurance(Naval) Directorate of Quality Assurance(Radars and Simulators) Directorate of Quality Assurance (Stores) Directorate of Quality Assurance (Vehicles) Directorate of Quality Assurance(Warship Project) Defence Research and Development Organisation Dead Weight Tonnage European Aeronautic Defence and Space Company Engineering Services Outsourced Field Artillery Rationalisation Plan Foreign Direct Investment Abbreviations FGFA FIPB FSU FTP GDP GFC GRSE GSL HAL HVF IAC IAF ICG ICT ICV IMF INS ISRO ITARS JV L&T LCA LPI LRDE LTIPP M&M MBT MDL MHA MIDHANI MiG MMRCA MOD MRO MRSAM MTA NATO OEM OFB Expansion Fifth Generation Fighter Aircraft Foreign Investment Promotion Board Former Soviet Union Fast Track Procedure Gross Domestic Product Global Financial Crisis Garden Reach Shipbuilders & Engineers Ltd Goa Shipyard Ltd Hindustan Aeronautics Limited Heavy Vehicle Factory Indigenous Aircraft Carrier Indian Airforce Indian Coast Guard Information and Communication Technologies Infantry Carrier Vehicle International Monetary Fund Indian Navy Service Indian Space Research Organisation International Traffic in Arms Regulations Joint venture Larsen and Toubro Light Combat Aircraft Low Probability of Intercept Electronics & Radar Development Establishment Long Term Integrated Perspective Plan Mahindra & Mahindra Main Battle Tank Mazagon Dock Limited Ministry of Home Affairs Mishra Dhatu Nigam Limited Mikoyan and Gurevich Medium Multi-Role Combat Aircraft Ministry of Defence Maintenance Repair and Overhaul Medium Range Surface to Air Missile Systems Multi-Role Transport Aircraft North Atlantic Treaty Organisation Original Equipment Manufacturers Ordnance Factory Board Prospects for Global Defence Export Industry in Indian Defence Market | 73 .
2007-08 and 2008-09 Defence Public Sector Undertakings Potential RURs identified Private sector defence firms and key operating domains Capital acquisition categories in the DPP Procurement process and timeframe Defence MOUs in India Defence Joint Ventures in India Tentative list of Offsets contract in India agreed to date Page No 8 16 16 19 22 25 26 27 27 29 30 31 32 37 40 42 43 45 53 54 56 60 62 74 | CII Indian Defence Industry Mission EUROSATORY 2010 . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Data description Projected expenditure by each Service Division Urban population and Urban disposable income demographics 2001 Government of India Budget 2010-11 Expenditure definitions Expenditure by Service division Imported vs indigenous production Forecast Expenditure on Defence Services Forecast Growth of Imported vs indigenous production. if targets are met Forecast Expenditure on Defence Services Indian defence acquisition plans in the Navy domain Indian defence acquisition plans in the land domain Indian defence acquisition plans in the Aerospace domain Indian defence acquisition plans in the Electronics domain Major Navy production currently occurring in India HAL Key Financial Performance Indicators.Abbreviations PSU QA R&D RFI RFP RMA RUR SAM SCAP SCAPCHC SED SHQ SLBM SME SQR SRSAM TAS TEC ToT UAC UAV ULH USD VVIP SQR SRSAM TAS TEC TEC ToT UAC UAV ULH USD VVIP Expansion Public Sector Unit Quality Assurance Research and Development Request for Information Request for Proposals Revolution in Military Affairs Raksha Udyog Ratnas Surface-to-Air Missile Services Capital Acquisition Plan Service Capital Acquisition Plan Higher Committee Strategic Electronics Division Service Headquarters Submarine launched ballistic missiles Small and medium enterprises Services Qualitative Requirements Short Range Surface to Air Missile System Tata Advanced Systems Technical Evaluation Committee Transfer of Technology United Aircraft Corporation Unmanned Aerial Vehicle Ultra light howitzers United States Dollars Very Very Important Person Services Qualitative Requirements Short Range Surface to Air Missile System Tata Advanced Systems Technical Evaluation Committee Technical Evaluation Committee Transfer of Technology United Aircraft Corporation Unmanned Aerial Vehicle Ultra light howitzers United States Dollars Very Very Important Person Summary of tables Table No.
1997-2008 Flowchart of various categories of acquisition Defence spend as percentage of country GDP Percentage of total global defence spend Page No 14 14 15 15 15 16 17 20 20 21 22 23 28 37 38 41 47 50 50 Box 1: Overview of Indian’s indigeous defence production Box 2: Ordnance Factories in India Prospects for Global Defence Export Industry in Indian Defence Market | 75 . GDP Growth rate and Industrial production Export and import Growth Rate of various sectors Population Vs Age group (2001) Tier distribution of cities Expenditure on Defence by GOI Indian GDP (1980-2014) Expenditure Breakdown Defence Expenditure as % of GDP – Budgeted Expenditure Unspent funds – Total Defence Budget Expenditure by Service division Unspent funds – Service Division Capital Budgets Public Debt to GDP – Key country comparisons Indian Navy Procurements through imports versus indigenous production (2000-2005) Indian Army procurements through imports versus indigenous production (2000-2005) HAL Domestic Sales and Indian Government IAF Aircraft and Aero-engine Capital Outlays.Summary of figures Figure No Data description 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 GDP Shared.
) Advisor (Marketing) Bharat Electronics Limited Laxman Kumar Behera Associate Fellow – IDSA Brig. Amit Kumar Singh. We would like to thank the various industry participants. Defence and Aerospace/Security/Space). ex-officials from the Ministry of Defence and other relevant governmental organisations like Defence Research Development Organisation (DRDO). We would like to thank the team at CII especially Gurpal Singh. Director. we have interacted with various participants in this sector. Centres for Airpowers Studies (CAPS) and United Service Institution of India (USI). Deputy Director General and Head (Defence and Aerospace). Vinod Anand (Retd) Senior Associate - USI Air Vice Marshal Kapil Kak (Retd) Deputy Director - CAPS Surbhi Sareen Assistant Librarian – CAPS Wing Commander Sandeep Sapra (Retd) Aerospace and Defence Consultant 76 | CII Indian Defence Industry Mission EUROSATORY 2010 . Deloitte would like to thankfully acknowledge the valuable inputs received from the following participants Sujeet Samaddar Vice President (Operations) Nova Integrated Systems Limited Brig Anand Mehra (Retd. Institute for Defence Studies and Analysis (IDSA). independent defence consultants.14 Acknowledgement In order to provide a comprehensive industry view in the study. whose invaluable contributions have made this study possible. for assisting us during the course of this study.
Mumbai 400 018.singh@cii. T Nagar.com Bangalore Deloitte Centre. India Phone : +91 (040) 40312600 Mumbai 12. Opp.singh@cii. DLF Cyber City Complex. Venkatnarayana Road. Richmond Road. India Phone: +91 (0124) 679-2000 Hyderabad 1-8-384 & 385. India Phone : +91 (022) 6667 9000 CII aerospace and defence contact e-mail id Gurpal Singh Deputy Director General & Head (Defence & Aerospace) Confederation of Indian Industry The Mantosh Sondhi Centre 23. Shiv Sagar Estate. 7th Floor. S.P. Lodi Road.15 Contacts Deloitte aerospace and defence contact e-mail id indiaknowledge@deloitte. Building 10 Tower B. 100/2. Gora Grand. Institutional Area. DLF City Phase II. New No: 52. Gurgaon 122002. New Delhi 110 003 Tel: 91-11-24629994-7 Email: amit. Road. 3rd Floor. Annie Besant Road. Dr. 37th. Lodi Road. Bangalore 560025. India Phone: +91 (044) 66885000 Delhi NCR 7th Floor. Begumpet. ASV N Ramana Towers.in Prospects for Global Defence Export Industry in Indian Defence Market | 77 . Institutional Area. India Phone: +91 (080) 6627 6000 Chennai Ol No. New Delhi 110 003 Tel: 91-11-24629994-7 Email: gurpal.in Amit Kumar Singh Director (Defence and Aerospace/Security/Space) Confederation of Indian Industry The Mantosh Sondhi Centre 23. Anchorage II. Chennai 600 017. Hyderabad 500 003. Worli.
78 | CII Indian Defence Industry Mission EUROSATORY 2010 .
Prospects for Global Defence Export Industry in Indian Defence Market | 79 .
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