The Indian defence industry is at an inflection point, which is poised for rapid growth led by the government’s thrust on indigenization and is likely to grow by double-digit over the next 5-6 years.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

The Indian defence industry is at an inflection point, which is poised for rapid growth led by the government’s thrust on indigenization and is likely to grow by double-digit over the next 5-6 years.

The Indian defence sector is moving forward in the right direction. How? Here are some of the facts to establish the narrative. The Indian government has spent 2.1 percent of the GDP on defence in 2021-22. The country has increased its defence capital expenditure by 19 percent in the same FY and has an $11.3 billion defence sector market to tap for domestic and international players.

The Indian defence industry is at an inflection point, which is poised for rapid growth led by the government’s thrust on indigenization and is likely to grow by double-digit over the next 5-6 years. MSMEs and startups are also expected to strengthen the supply chain of the Indian defence sector. Government initiative such as iDEX aims at creating an ecosystem to foster innovation and technological development. On the exports front, India is well on track to achieve its US$5 billion defence export target by 2025, largely driven by private sector players and MSMEs.

What’s more? The recently concluded defence expo witnessed a total of 451 MoUs, Transfer of Technology agreements, product launches, and orders to domestic businesses, worth Rs 1.5 lakh crore in defence and integration between the Armed Forces requirements, R&D, and defence production by public and private players. Interestingly, the last defence expo saw 200 MoUs worth Rs 50,000 crore.

Defence Minister Rajnath Singh stated that more than Rs 300 crore have been approved for over 100 iDEX winners to develop products/technologies in more than 50 technological areas, stressing that the iDEX initiative has changed the perception that defence production is only for big businesses.

Aerospace and defence hotspot

Speaking on investment opportunities in the defence sector during Defence Expo 2022, Prime Minister Narendra Modi informed that India is building two defence corridors in UP and Tamil Nadu and many big companies of the world are coming to invest in India.

To boost investments, Tamil Nandu has come up with a draft Aerospace and Defence (A&D) policy which includes, investment promotion subsidies including fixed capital subsidy (ranging from 5-12 percent of capital investment) and turnover-based subsidy (2 percent of turnover), skilling subsidy (to train employee), land cost subsidy, stamp duty incentives, electricity tax deduction (100 percent for 5 years), etc., special structured package and incentives for MRO – treated as deemed exports, etc.

The government of TN has adopted strategies such as creating common infrastructure to avoid large CAPEX by MSMEs, policy level support, promoting A&D startups, creating industrial parks, and ease of doing business with a focus on sub-sectors such as Armored Vehicles & tanks, sensors, radars, communication & electronic warfare, rockets, ammunition, drones, etc.

Since Defence Expo 2020 hosted by the government of Uttar Pradesh in Lucknow, the project has evolved to a stage where the government has reached a significant number of 92 Industrial and Institutional MoUs. In addition, recently, the UP government has signed 14 new MoUs, crossing the century mark of investors.

Uttar Pradesh Expressways Industrial Development Authority (UPEIDA) was assigned as the nodal agency for implementing the project. The state signed these 92 MoUs with an envisaged investment of over Rs 11,000 crore in the past two and half years. To facilitate the project, the state also released its Aerospace and Defence Policy to provide incentives to investors and created landbanks in six districts called the Defence nodes with the provision of industrial-grade water and power supply along with road connectivity to deliver industry-ready land to investors.

The project gained even more impetus when giants like Bharat Dynamics Limited (BDL), BrahMos Aerospace, and Adani Defence Systems joined hands with the state to set up their manufacturing units in the Corridor. Where BDL is setting up its missile propulsion unit in the Jhansi node, BrahMos is setting up its Next Gen BrahMos missile manufacturing unit in the Lucknow node and Adani Defence Systems is going to set up a massive integrated ammunition manufacturing complex in the Kanpur node

That said, Telangana is poised to be the largest defence R&D manufacturing hub. The state provides an ecosystem/infrastructure for product manufacturing led by superior infrastructure, skilled manpower, strong MSME clusters, and an attractive industrial policy. Telangana houses over 1,000 defence MSMEs in the precision engineering space along with large players like BEL, HAL, Bharat Forge, etc.

At a time when India is accelerating in defence production and manufacturing, Gujarat’s role has become equally important in the last eight years in the said sector. Larsen and Toubro Ltd have established a New Green Field manufacturing-integration testing complex at Hazira with an investment of over Rs 250 crore. At present, the firm is executing the ‘K9 VAJRA-T’ Self-Propelled Howitzer Guns program -the largest contract awarded to an Indian private company by the Ministry of Defence. Jaivel Aerospace Private Ltd has a manufacturing, technology, processes, and tooling organization at Sanand with an investment of more than Rs 20 crore. These are just a few investments that have taken place in Gujarat in the defence sector.

Gujarat ought to rise in India’s defence production due to a large number of MSMEs with 83 identified MSME clusters. MSMEs will play a vital role in various areas of the defence sector such as research and development, software development, forging, metalwork, etc.

DPSUs Orderbook

As of today, Mazgaon Dock Shipbuilders Ltd (MDL) the premier shipbuilding yard in the country, has submitted proposals for exports to various countries viz. Brazil, Peru, Argentina, Philippines, Hungary, Sierra Leone, Chile, Cameroon, etc. for construction & delivery of OPVs, FPVs, FICs, Floating Docks, Flat Bottom Shallow Boats, FAC, and Corvettes.

MDL has been selected as the preferred production partner to undertake major ship construction activities for SSK Zvezda Shipbuilding Complex, Russia which will open up a large-scale export business opportunity for India and specifically to MDL in the future as the envisaged quantum of work is an enormous spanning for years.

Gliders India Limited, a Central entity has successfully and timely completed its first export order from Malaysia for brake parachutes of Sukhoi-30 Fighter Aircraft within just four months after receipt of the order. “In addition to this, GIL is in contact with various other countries like USA, Kazakhstan, Malaysia, Kenya, Bangladesh, Uganda, Angola, Nepal, Indonesia, etc., in addition to Malaysia for repeat orders,” informed a person familiar with the development.

Armoured Vehicles Nigam Ltd, one of the seven new DPSUs created by the government has an outstanding orderbook of Rs 36,000 crore. Garden Reach Shipbuilders & Engineers Ltd is currently constructing 24 ships across seven projects of the Indian Navy, Indian Coast Guard, Government of West Bengal & foreign nations. “With a healthy order book of approx. Rs 24,000 crore and some in the pipeline, we are looking at high growth in turnover in next few years,” said Cmde PR Hari, IN (Retd.) Chairman and Managing Director, GRSE.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members