From Israel to France, the Indian government is extending bilateral relations with the prime focus of edifying the Aerospace and Defense sector. In the time of global socio-political turbulence, India is striving hard to make itself an A&D front country. Currently, reports suggest that India procures nearly 70% of its defense supplies through imports. The remainder of the 30% of defense equipment is supplied by the private sector, the Ordnance Factory Board (OFB), and the Defense Public Sector Undertakings (DPSU). Under the ‘Make in India’ program the NDA government is benching new proposals and making clear ways to create the indigenous A&D ecosystem.
‘Wake in India’ for Aerospace and Defense
India Aerospace & Defense Market size is set to exceed USD 23 billion by 2024; according to a new research report by Global Market Insights, Inc. Although Russia continues to dominate Indian defense equipment imports, India has lately sought to diversify its procurement sources, with a recent focus on the US. During the forecast period, the US, the UK, and Israel are expected to further strengthen their market positions, reducing the market share of other European suppliers such as Germany and France. For example, India signed a US$3 billion deal with the US for procuring 15 CH-47F Chinook heavy-lift helicopters and 22 AH64E Apache attack helicopters. The Indian MoD also signed a contract of US$107.8 million with the US based Lockheed Martin for procuring pilot night vision sensor (PNVS) systems for Apache helicopters.
Between 2013 and 2017, the Indian defense budget increased at a CAGR of 7.73%, and is expected to increase significantly, at a CAGR of 10.49%, during the forecast period, to reach a value of US$69.1 billion by 2022. Prolonged unresolved border issues and rising tension with two neighboring nations, China and Pakistan, is expected to fuel the defense budget in the coming years; in addition to the country’s need to replace its aging and outdated military hardware and technology.
Under the Make in India campaign, launched by the BJP Government and led by the country’s Prime Minister, Narendra Modi, India’s manufacturing capabilities are under process of being enhanced, presenting ample growth opportunities for Indian defense manufactures such as the Tata Group, Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BHEL), Mahindra Defence Systems (MDS),and Reliance Defence.
India aerospace & defense market is expected to grow at a significant pace owing to growing need for the modernization of Indian armed forces. The modernization drive aims to leverage advanced military technology to improve the operational capabilities. Need for improvement in areas such as battlefield support systems, situational awareness, non-lethal weapons, and artificial intelligence is expected to drive the India aerospace & defense market over the next seven years.
The government is increasing defense budget and has undertaken several projects in line with the Make in India campaign. For instance, as a part of Infantry Vision 2020, the government has started Future Infantry Soldier as a System (F-INSAS) program to enhance the optical, electro, and situational capabilities of a soldier. Increasing investments in research fields including nanotechnology, directed energy weapons, and NBC warfare are anticipated to fuel the India aerospace & defense market growth. The manufacturers are shifting their focus to this industry, owing to the initiatives taken by the government such as Offset policy. However, very slow and time-consuming tender processes may hinder the entry of private players.
India aerospace & defense market for marine applications is expected to grow at a steady pace, owing to the plans of the government to build 200-ship navy over the duration of 10 years. Increasing interest of the People’s Liberation Army Navy of China in the Indian Ocean is encouraging the country to invest more in anti-submarine ship manufacture. In September 2017, India deployed a submarine, two navy ships, and two long range maritime reconnaissance aircrafts in southern Indian Ocean and western Arabian Sea. India Homeland security is expected to witness significant growth owing to the increasing internal unrest and terrorist threat. The budgetary allocation for the Ministry of Home Affairs is expected to reach about USD 20 billion by 2017-18.
India, Israel inks A&D Future
The Indian government has put perennial efforts to rejig and enhance the operational capabilities of its defense forces. This year, the nation’s defense budget is projected to show growth of 7.81%. Finance Minister Arun Jaitley has said the government will also bring out an industry-friendly defense-production policy for 2018 aimed at promoting indigenous production by the public and private sectors, including micro small and medium enterprises, or MSMEs.
After opening up private investment and liberalizing foreign direct investment (FDI) in defense production, the government plans to establish defense industrial corridors in the country, with the first to be built in the Tamil Nadu state. In the last three-and-a-half years, a number of Indian states have replicated the model of the biennial investors’ Vibrant Gujarat summit in order to attract global investment and industries in their states, which is crucial for the development and job creation. A number of global investor summits have taken place, including GIS Madhya Pradesh, Resurgent Rajasthan Partnership Summit, Momentum Jharkhand, UP Investor Summit, Happening Haryana, North East Investors Summit, Invest Karnataka and Sunrise Andhra Pradesh Investment Meet. This year started with Bengal Global Summit, Advantage Assam and Magnetic Maharashtra. For the first time, Indian states are launching policies to ease business regulations and promote indigenous defense manufacturing.
Early this year, the Maharashtra government approved a defense and aerospace production policy. The state government will create Rs 1,000 crore (approximately $150 million) in initial working capital to the small-to-medium enterprises, or SMEs in those sectors. Under its defense and aerospace policy, the government plans to establish “defense hubs” at Pune, Nagpur, Ahmednagar, Nashik and Aurangabad. The state will offer financial concessions and incentives to develop indigenous defense technologies and to establish “anchor units” to build an ecosystem for defense MSMEs. Other states such as Uttar Pradesh and Tamil Nadu are also drafting their aerospace and defense manufacturing policy too. The Uttar Pradesh government is planning to develop defense manufacturing clusters in the state. Encouraging the start-ups and SME participation in the indigenous defense manufacturing is a key priority of the Defense Ministry. On January 16, the Defense Acquisition Council, chaired by Defense Minister Nirmala Sitharaman, announced a revised and simplified “Make II” procedure, in which some special provisions are given to MSMEs. The Ministry, in cooperation with the Federation of Indian Chambers of Commerce and Industry, or FICCI, has launched a platform called “Society for Indian Defense Start-ups,” or SIDS, as an institutional-support mechanism for development and funding of defense start-ups.
THE DPSUs and Defense Research and Development Organization (DRDO) labs will also collaborate with FICCI to nurture the MSMEs with the relevant expertise. For the first time, a number of Indian defense start-ups have made their presentations before the defense minister. Such initiatives reflect the government’s readiness to give Indian defense start-up and SMEs a muchneeded push.
A number of Indian MSMEs used to serve as the suppliers to DPSUs and are the key players behind the success of some major defense manufacturing projects.
According to a bit old but still viable report, nearly 6000 MSMEs in India are supplying the components and sub-assemblies to the DPSUs, ordnance factories, DRDO and private industries.
The access to markets, non-recovery of dues from large-scale buyers and lack of adequate and timely finance are some of the most talked about challenges among SMEs. In the Indian union budget for 2018, the government has addressed these issues with specific measures. The government has proposed to bring public-sector banks and corporations onboard the Trade Receivable Discounting System (TReDS) platform and link this with the Goods and Services Tax Network, or GSTN. The TReDS is an online platform which was launched last year to facilitate the financing of trade receivables of MSMEs. The government has provided Rs 3794 crore (about $600m.) for giving credit support, capital and interest subsidy to MSMEs. The government will take some additional measures for addressing the nonperforming assets and stressed accounts of MSMEs too. The target of lending under MUDRA Yojana has been extended to Rs 3 lakh crore. From this year, NBFCs (Non-Banking Finance Companies) will also facilitate MUDRA loans for MSMEs. The MUDRA scheme was launched by the Indian government to provide easy finance to entrepreneurs from rural and remote areas. After implementing a series of efforts and structural reforms over the course threeand-a-half years now, the government is fast-tracking defense-production efforts. On February 13, the Defense Acquisition Council of India approved capital acquisition proposals of Rs 15,935 crores. The DAC has fast-tracked the procurement of the assault rifles, sniper rifles, light machine guns and advanced torpedo-decoy systems for warships. According to a press release, the assault rifles will be made in India under the category of “Buy and Make Indian,” through both the Ordnance Factory Board and private players.
THE HIGH-PRECISION weapons will be bought with the “Buy Global” category. The ammunition for these will be initially procured and subsequently manufactured in India. The Government e-Marketplace (GeM) is one of the bold steps of the Indian government. The GeM (launched in 2016) aims to transform the way in which procurement of goods and services is done by government ministries and departments, PSUs, autonomous bodies, etc. This platform has a great potential to support “Make in India” drive, MSMEs, and indigenous defense manufacturing process. On January 30, its upgraded GeM 3.0 version was launched. The GeM 3.0 would offer standardized and enriched catalogue management, a powerful search engine, real-time price comparison, template-based bid and RA creation, demand aggregation, e-EMD, e-PBG, user rating, advanced MIS, analytics and more.
Israel’s defense-tech industry is famous for delivering operationally proven cutting-edge technologies. In Israel’s defense industry, the contribution of the SME sector is significant. Despite relatively low numbers, these SMEs provide added value to the larger firms. These SMEs offer prompt innovative and flexible solutions to urgent needs. In 2014, the SME department of SIBAT (a department of the Israeli Defense Ministry that regulates defense sales by managing licensing and export controls) took initiatives to promote their country’s defense SMEs in the international markets. India’s defense manufacturing push has created a plethora of new opportunities. The Israeli defense SMEs can join hands with the Indian defense manufacturing SMEs to tap into these opportunities.
In the joint statement issued during Prime Minister Benjamin Netanyahu’s India visit, both countries reasserted the desire for co-production in the defense sector and for developing new business models of joint ventures, including joint manufacturing. In the coming days, it is expected that the engagement between the public and private sectors of both sides will accelerate. On the sidelines of Netanyahu’s visit, the head of SIBAT, the International Defense Cooperation Directorate of Israel’s Defense Ministry and officials from India’s Department of Defense Production held a discussion to explore the possibilities of collaboration in defense manufacturing.
French major Safran’s CEO Philippe Petitcolin has said it expects more big deals and higher share in the Indian commercial aerospace market. Safran, which has a significant presence in India across commercial aerospace and defence segments, has just inked a USD 12.5 billion (over Rs 81,000 crore) worth deal with no-frills airline SpiceJet for CFM aircraft engines. The Safran-SpiceJet deal, under which around 340 engines are to be supplied to the budget carrier, is also one of the biggest in Indian aviation sector.
India Revs Up for 74% Foreign Investment in Defence Technologies Without Approval
India plans to allow higher foreign investments in niche defence technologies under the automatic route aiming to woo local manufacturing. Prime Minister Narendra Modi’s administration aims to increase the foreign direct investment cap from the current 49 percent to 74 percent in such technologies, according to a draft Defence Production Policy 2018 released by the Ministry of Defence. As of now, anything over the existing limit is allowed on a caseto-case basis.
India aims to be among the top five countries in aerospace and defence, the official document said. The policy aims at reduced dependence on imports, and self-reliance in development and manufacturing of indigenous weapon systems. The government plans to increase the domestic production nearly threefold to Rs 1.7 lakh crore by 2025. The key focus, according to the draft, will be on:
• Fighter aircraft • Medium lift and utility helicopters
• Warships • Land combat vehicles
• Autonomous weapon systems • Missile systems
• Gun systems • Small arms
• Ammunition and explosives • Surveillance systems
• Electronic warfare systems • Communication systems
• Night fighting enablers
o Licensing Regime
The government will list platform and weapon systems being considered for procurement in the next 10 years to help private firms understand the opportunities. It will also simplify ‘Make-II’ process for private companies to enter defence production. To that end, it will liberalise the regime by allowing licenses in 30 days, pruning the no-go areas to a small ‘negative list’ for licensing.
The government will also do away with ex ante, or forecast-based, capacity assessment except in critical projects. It will introduce earnest money deposits and performance guarantees as safeguards for others.
o Offset Regime
The government proposes to set up an offsets ombudsman for resolving all such claims. Offsets—investments through a local partner to set up ecosystem of suppliers—would be investment linked. Taxation: The policy aims to rationalise taxes on import of capital goods for services and inputs for defence and aims to prevent inversion of taxes.
o Defence Industry Corridors
The policy aims to build defence industry corridors in partnership with states and on existing production facilities to create an ecosystem of supply chains of small businesses and original equipment makers. The government will spend Rs 3,000 crore each to create a special entity for developing such corridors.
India is looking at Rs 35,000 crore of exports by 2025. It will promote made-in-India products through government-to-government agreements and line of credit. The Indian offset partners would be encouraged to take up export of parts and accessories.
The government proposes to set up National Aeronautical Commission for better coordination and sharing of information and technologies. It plans to set up an aeronautical university along with Hindustan Aeronautics Ltd. by equally sharing the costs.
It plans to transition automotive component manufacturers to aeronautical parts design and manufacturing.
The government also plans to develop a civilian aircraft for 80-100 seats over the next seven years by leveraging the design and manufacturing capabilities developed in the country.
o Boost For HAL
India wants to augment capacities to produce various platforms, including light combat aircraft, advance light helicopter, light combat helicopter, light utility helicopter and Dornier 228 for armed forces and exports.
Integrated miniaturised avionics, smart sensors and innovative guidance schemes would be the backbone of futuristic aerospace and defence systems, G Satheesh Reddy, Scientific Advisor to the Defence Minister, said today.
“Integrated, miniaturised avionics and smart sensors will be the backbone for futuristic aerospace and defence systems. We need to establish necessary infrastructure to provide highly accurate and effective algorithms for the control and guidance of fighter aircrafts, missiles and launch vehicles to make them into next generation systems,” Reddy said. While addressing the third International Federation of Automatic Control (IFAC) Conference on Advances in Control and Optimisation of Dynamical Systems (ACODS-2018), organised by the DRDO here. Synergetic efforts of research and development institutes, academia and industries had enabled our country to achieve self-reliance on several technological fronts, he said, adding that technologies had been evolving quickly and the need was to focus on smart and adaptive systems to make our aerospace vehicles cost effective and state-of-the-art.
DRDO Chairman and Secretary, Department of Defence Reserach and Development, S Christopher said, “Control and guidance technologies are crucial technologies that find widespread applications in both civil and defence sectors. Futuristic weapon systems will be smart, intelligent, complex and technologically advanced.”
“If Korea can do it, so can India. While the pace of implementation may be slow, the defence offset and civil offset conditions are very clearly being laid down, and Aerospace sellers into India have no option other than to fulfil offset conditions.” “India’s aerospace industry could experience a steady increase of its capabilities. It would lead to a broad diffusion of technology throughout the economy. Foreign companies on their part will benefit by leveraging the advantages of the Indian market.”
Future Workforce Armed With A&D Expertise
The majority of Delphi experts believe that the high level of attention given by central and state governments to the issue of manpower development in high-skill sectors is expected to ease this problem in the coming years. However, specialized knowledge at the highest levels of domain expertise will continue to be in short supply. Many educational institutions have now set up aeronautical departments. The government’s education policy will lead to many new research institutes of higher education being set up across the country. Also, several foreign trained experts and researchers from the aerospace sector are believed to be returning to India. However, there are still doubts on the pace of such reforms taking place in the coming years. The quality of graduates being qualified by such institutes is another concern that has been discussed during the Delphi debate. A significant reorganization of India’s higher education system is felt to be the need of the hour. In the context of the aerospace industry, it is important for these institutes to develop industry specific courses. According to the Delphi panel this can only be achieved with an active involvement of both the government and the private sector aerospace companies. The Delphi panel believes that any improvement in the perception of India as a secure destination for locating IP-focused processes and technologies will definitely promote increasing investments in such areas. It is likely to complement India’s other strengths such as a reliable local management, a successful track record, skilled manpower and reliable legal frameworks. Adequate mechanisms to IP protection and technology transfer are expected to attract more OEMs to establish local manufacturing units in high-technology sectors.
High-skilled manpower will have significant impact as Indian companies will be able to move faster up the value chain and be able to contract more service outsourcing and/ or manufacturing projects for India.