With India embarking on a major modernisation programme for all three wings of its armed forces, the country has emerged as the world’s top importer of arms and weaponry over the last few years. According to the latest data provided by the Swedish government supported Stockholm International Peace Research Institute (SIPRI), the world’s top think tank in defence matters, during the period 2006-10, India overtook China and became the world’s largest arms importer accounting for 9% of global arms transfers with 30% share of the total arms imports of the top 5 importers.
During the 12 year period 2008-2020, India is expected to spend as much as $200 billion on new acquisitions, modernisation and replacement of obsolete weaponry, aircraft and warships. For the five year period 2012-2017 alone, India is expected to spend $120 billion on capital expenditure in the defence sector. In the current year 2011-12, India’s defence budget was $34 billion which is expected to grow at a CAGR of over 11% annually over the next few years till 2020.
With defence budgets facing likely cuts in the home markets of the world’s largest arms producers (including the United States, which until 2010 saw record defence budgets every year since 2001), India at present offers the world’s largest market for global defence producers and is an opportunity that no global defence company can afford to miss.
India’s mega defence modernisation plans also include a stress on indigenisation. At present India imports about 70% of its defence requirements with domestic producers supplying the balance. The Indian Ministry of Defence (MoD), however, has articulated the goal of reversing the situation by 2020 and achieve indigenisation of all defence production and supply to the extent of 70%.
The MoD’s new Defence Production Policy announced in January, 2011 clearly enunciates its agenda of indigenisation. The government has already opened up defence production to the private sector allowing 100% participation to domestic private sector companies and Foreign Direct Investment (FDI) up to 26% in such companies. Currently, the Indian private sector defence supplier group is composed of around 5,000 companies (large and MSMEs). India’s defence acquisition, modernisation and production plans therefore, represent a big opportunity for Indian private sector companies as well whether they are large firms or Micro, Small and Medium enterprises.
Apart from the overall emphasis on indigenisation, India has already put in place an offset policy as in most other large arms importing countries. The offset policy requires foreign vendors to plough back at least 30% of their defence contracts with India to Indian companies through sub-contracting and supply deals. This in turn implies a large offset market for Indian private and public sector companies both in the defence as well as civilian domains.
India’s modernisation plans in the homeland security sector also imply a very large market for MNCs as well as Indian private sector companies both large and MSMEs. According to one estimate, the total annual spend by India – both public and private on homeland security (apart from defence) – is as much as $570 billion and is growing at an explosive rate of 40% per year.
The MSME DEFEXPO 2012 Exhibition on Defence, Aerospace and Homeland Security offers a platform for MNCs, Indian Defence PSUs and Indian private sector companies (large firms and MSMEs) to tap this mega market running into hundreds of billions of dollars