New Delhi: India is estimated to spend about $80 billion in the next five years on defence acquisitions, making it one of the most attractive markets for global defence firms, an industry study has said.
The CII-Deloitte report on ‘Prospects for Global Defence Industry in Indian Defence Market’ said the defence capital expenditure budget was expected to achieve a Compound Annual Growth Rate (CAGR) of 10% from 2011 to 2015.
Total indigenous production between 2011 and 2015 would need to expand from about $30 billion to more than $70 billion in the span of five years to be able to achieve 70% indigenisation by 2015, the report, released during the Eurosatory-2010 defence exhibition in Paris, said.
It noted that the defence industry would need to expand by an average of 30% a year over the next 5 years.
The report, released by Defence Production secretary R K Singh, provides information to global investor firms to understand the Indian defence requirements and domestic industry capabilities and opportunities in four key domains -- maritime, land, aerospace and electronics.
Singh, in his address, said the ‘Buy and Make (Indian)’ category in the Defence Procurement Policy of 2009 was an opportunity for foreign players to partner with the Indian Defence industry.
He further said the new category would enhance the formation of joint ventures and technology partnership between the Indian and foreign defence industry.
Responding to a query, Singh clarified that the defence Ministry was in favour of continuing with the Foreign Direct Investment (FDI) limit of 26%.
“Over the past decade, the Indian Ministry of Defence has put into motion plans for an unprecedented modernisation program of its defence capabilities.
“In this context, India has embarked on a major defence acquisition program, aimed at increasing the size, capability and self-reliance of its armed forces,” it said.
The report said the aerospace and defence sector was growing at an unprecedented rate and emerging as a key participant in the Asia Pacific region. It also provided an indicative list of the Indian defence acquisition plans.
In the 2010-11 budget, the government had earmarked $32.03 billion (Rs 1,47,344 crore) for defence.
“More than $42 billion in total defence expenditure is targeted by 2015, of which approximately $19.20 billion would be expected to be spent on capital equipment for the armed forces,” the report said.
CII director General Chandrajit Banerjee said while it was clear that India was seeking a high level of self sufficiency in delivering its ambitious defence re-equipment and expansion program, it was also evident that there would be a much reliance on overseas interests to supply the necessary technology in a number of areas.
“Foreign Original Equipment Manufacturers are now looking at India as a critical market as well as a potential manufacturing partner,” he said.
CII deputy director general Gurpal Singh said India was gradually becoming a key outsourcing hub for the global defence industry.
The continuous revisions of the defence procurement procedures in the recent past suggested the intent of the Indian government to streamline the procedures and make the system more transparent and speedier, he added.
Deloitte director (Aerospace and Defence) Nidhi Goyal, on the release of the report, said India was considered as the next destination of manufacturing, given the country’s strengths like wider supplier base, low cost manufacturing, persistent focus on infrastructure development, huge pool of skilled workforce and increased penchant for enhancing competitiveness by the respective domestic firms.
She said the current offset contracts were still not sufficient for Indian industry growth and hopefully the target for offset contracts at $10 billion by 2011 would give a further boost to the industry.
“The sheer volume of planned expenditure is expected to create new opportunities for foreign firms, as total spending will grow in absolute terms. India is also host to a mature manufacturing sector, which means it will often be able to offer more cost-competitive terms for large platform builds,” she added.