In an economy expanding at the slowest pace in six years, where businesses ranging from steel and automobiles to construction and travel are feeling the pain, the potential of its aviation and aerospace markets, going beyond the downturn, provides a silver lining.
India’s often uneasy relationship with arch rival Pakistan, with which it has been to war three times since the subcontinent’s independence, has often influenced its defence budget.
Clear skies: Fighter planes at Aero India 2009, Asia’s premier air show, at Air Force station Yelahanka, Bangalore. Demand for Indian aerospace products and services by 2012 is estimated to be at least $10 bn. Hemant Mishra / Mint
And, over the coming years, the country is set to ratchet up defence spending and expand the geographical spread of its big-ticket purchases as it attempts to reinforce its military muscle. India relied mainly on the former Soviet Union and its successor, Russia, for its defence purchases in the past.
“There is an economic slowdown but that will not deter us. We will provide you (the Armed Forces and defence research industry) whatever you want to safeguard India’s national interests,” defence minister A.K. Antony said in Bangalore on Monday, a day before the start of the Aero India air show.
Of the $100 billion (Rs4.87 trillion) that India is expected to spend to add to its military might by 2017, nearly 40% will be earmarked to purchase fighter jets, transport aircraft and spy planes from foreign firms, researcher Frost and Sullivan estimates.
Thanks to a defence procurement policy that requires foreign military equipment vendors to source from India at least 30% of the value of contracts worth at least Rs300 crore, demand for aerospace products and services worth at least $10 billion could come to Indian companies by 2012.
“The business cycle of each (aircraft) product is at least 25 years. You work long-term, not till a recession,” says Roger Moser, a visiting professor at the EADS-Supply Management Institute endowed chair for sourcing and supply management at the Indian Institute of Management, Bangalore (EADS is short for European Aeronautics, Defence and Space Co.).
It is not just defence aviation that stands to gain. Frost and Sullivan said the growth in air passenger traffic and the number of planes in Indian skies will result in expansion at Indian airports or the construction of new ones.
The firm estimates the number of people flying to increase to 290.19 million by 2014, compounding at 15% from 102.73 million last year.
Passenger airlines are likely to post a combined loss of $2 billion this fiscal, but that’s not stopping fledgling regional carriers waiting to take to the skies under a policy aimed at encouraging air travel between small towns, with incentives of lower airport charges and taxes on fuel thrown in.
“The losses of scheduled carriers were mainly due (to) their business model,” says the chief executive of a regional carrier who blames “irrational pricing” by bigger carriers for losses. “We have a different model,” adds the executive, who did not want himself or his firm to be identified.
At least three such firms—Star Aviation Pvt. Ltd, King Air Pvt. Ltd and Zav Airways Pvt. Ltd—expect to start operations in 2009.
But, air cargo, which aviation minister Praful Patel expected to be the next sunrise segment for the country’s aviation industry, is feeling the heat, with cargo volumes contracting and likely to lag the aggressive projections made earlier. Just two firms—Deccan Cargo and Express Logistics Pvt. Ltd and Quikjet Cargo Airlines Pvt. Ltd—from nearly a dozen companies which announced plans for the business are ready to start operations this year.