As India is evolving itself from a regional power to a global power, the country’s economic and technological prowess is witnessing a resurgent growth. A peaceful and conducive environment that enables the growth of Indian interests remains to be stressing requirement. The dynamic and unpredictable geopolitical powerplay of regional and global developments, ranging from West Asia to the Indo-Pacific waters, has meant that the country’s security threat calculus has undergone a tectonic shift.
The need to sustain a peaceful thriving security situation, that enables for achieving transformative national growth and development across India’s area of interests is the responsibility of the Indian Armed Forces. As the wide spectrum of conventional and non conventional security challenges facing India gain much more ground, and evolve both in intensity and technological, modernisation of the Armed Forces remains to quintessential mission for India’s policy makers.
Constant reviews of the multiple security challenges facing the country and the necessitated refinement of the operational preparedness to meet these perceived security challenges has meant that the armed forces have been mandated to actively mount a massive drive for modernising of their ranks and files, in an effort to be better postured to counter these threats.
From being a regional military, right after its independence in 1947, the country’s military have through the course of the 20th century evolved to be a trans-regional force, one which can apply its military might right from the waters off the West Asian region to the far deep waters of Indo-Pacific. This transition, which was undoubtedly a daunting task for both the country’s armed forces and the policy makers, is usually largely credited to the costly imports of defence technology that was at its peak in the late 1980s. From modern fighter aircraft to stealth submarines, India acquired much of its military might through the 20th century.
The 9 Defence Public Sector Undertaking (DPSUs), which function under the Department of Defence Production, have for years remained at the pinnacle of India’s defence manufacturing capability. While the imports no doubt provided the armed forces with a striking punch, the modernisation drive has also been largely supported by these DPSUs, which through licensed production and minimal development in the 20th century added lethality to the strike power of the forces.
The larger Research and Developmental (R&D) activities in the sector prior to 2000 was hoarded with the country’s Defence and Research Developmental Organisation (DRDO). These state-run entities much until 2005, enjoyed an unquestioned monopoly over the market, in the absence of any competition from the private sector.
Through the efforts of the local shipyards (DPSUs), the Indian Navy has been able to realise its ‘Make in India’ dreams. Today, over 43 ships and submarines are under construction at various stages in Goa Shipyard Limited (GSL), Mazagon Dock Shipbuilders Limited (MDL), Garden Reach Shipbuilders and Engineers (GRSE) and Hindustan Shipyard Limited (HSL). Further, a major part of the sub-assemblies such as gears, shafts, propellers and hatches etc are being locally manufactured. Each of the newer ship being floated out by the shipyards feature higher degree of indigenisation compared to its predecessor. While the Navy has been successful in attaining 100% indigenisation in the hull component, it stands at 65% and 40% in the move and fight category respectively.
The drastically evolving threat calculus of the 21st century, pushed the Indian Government towards opening up the defence manufacturing sector for the country’s private sector in 2001. The following decision to implement a modest and liberal Foreign Direct Investment (FDI) initiative by 2004, meant that the capabilities of the country’s defence manufacturing sector has undergone a transformative definitive growth.
Data available with the Government reveals that the Private sector in less than 15 years has made business of over INR 15,000+ crore. The maturing sector, which has made deep inroads into the multi-billion dollar defence equipment market, has already mastered the build-to-print phase and has shored up capabilities to take up projects in the build-to-specification categories. The recent boost by the Government has enabled several of the big ticket firms to scale up their capabilities thus allowing them to commence designing of technology from scratch.
Currently there are about 70 license holding private companies. The Government has also issued 440 defence licences to the country’s private industry. The sector alone currently employs about 1.7 lakh.
Companies such as Larsen & Toubro (L&T), Tata Aerospace and Defence, Mahindra and Mahindra and Bharat Forge have been steadily receiving orders from all the three services. In fact, the Army has committed almost 30% of its capital acquisition to the private sector either directly or indirectly. Another major factor that promises to enhance the market share of these companies is sourcing of systems for the gigantic PSUs. For instance, Tata has a strong presence in almost all of the country’s aerospace programs. L&T has been playing crucial role in manufacturing missile systems, submarines and combat vessels for the forces. The ATAGS program for the maiden time will witness the direct involvement of the private sector in the defence manufacturing as Tata Aerospace and Defence and Bharat Forge have been nominated as the lead manufacturers for the system.
Further, companies such as Tata Aerospace and Defence and Mahindra and Mahindra have firmly established themselves at the centerstage of global OEMs’ supply chain. Tata Aerospace and Defence today is sourcing critical aerospace structures for Boeing, Lockheed Martin, Pilatus etc. The company is currently sourcing the entire wing fuselage to the Lockheed Martin’s F-16 program. Mahindra has established itself as being one of the only India companies with the capabilities to manufacture a complete aircraft, OEMs such as Boeing and Airbus have engaged it for manufacturing high-standard aero-structures.
The mandated off-set clause for defence deals has helped the private sector to implant themselves deeper in the manufacturing cycle. Opportunities emanating out of these programs have enabled companies such as Reliance Defence and Engineering Limited (RDEL) to not only gain business but to lay hands on allied technology.
Larsen & Toubro, India’s leading defence equipment manufacturer is working closely with European companies. More than 2000 small and medium aerospace enterprises are working towards making India a self reliant aerospace power.
With an outlay of well-over USD $100 billion for procurement of weapon systems over the next five years, India today boasts of one of the largest defence markets. As the Indian Government throttles forward with its modernisation agenda of the country’s armed forces, India has emerged as a favoured hunting ground for global manufacturers. At the helm of industry interest, global attention and key players driving the show, the Indian Aerospace and Defence industry has set its own pace in its growth. The unprecedented synergy among the stakeholders of the industry has resulted in the market to witness inking of mega agreements over the years.
With a clear vision, the government has upheld indigenisation of the industry itself by absorbing the technologies which in turn supports the nation in lowering the import numbers. These defence deals can also be utilised to gain diplomatic as well as political mileage. however, India along with friendly nations can ensure the best utilisation of the opportunity of its defence and aerospace procurement to bring home the niche technology and make India as the defence manufacturing.
Much has been discussed on various forums on the Make in India initiative and Defence Procurement Policy(DPP), which has been the bible of the Indian defence industry, which is an effective framework for policy dissemination, that has been drafted after having a series of discussions between the industry, stakeholders of the industry and the government. With enhancements towards making the ease of business with India, DPP, has set course towards achieving the dream of self reliance in defence manufacturing by allowing global players to play a supporting role.
Emerging opportunities in Indian aerospace and defence industry
With large scale acquisition programs, India has been recognised as the most lucrative defence market in the globe, adding cream to the layer is the increased number of closures observed in recent years, with the backing of the government. This has been substantiated with the increased number of tie-ups by the Indian companies with global players including the OEMs and other stakeholders of the supply chain, making them to knock the door of Indian defence industry.
The transition of India in being a hub for aerospace and defence sector is not possible without the support of government and optimal policies. The Ministry of Defence has uplifted its support towards achieving this objective by taking feedback from industry players and stakeholders to make the ease of business with India.
The persistent revisions of Defence Procurement Policy (DPP), where the policy has undergone 7 revisions in the span of 9 years since 2002 is a testimonial to the willingness of MoD in streamlining the procurement process. In the Indian context, Defence acquisition is a complex decision-making process that involves the varying requirements from the forces, single vendor situation and not to forget, the budgetary constraints. However, the government has taken requisite measures to ease the business operations and boost the forces by equipping them better.
On the other hand, the Defence Production Policy was introduced with an objective to harness the emerging dynamism of Indian defence industry and capabilities available in the R&D institutes of the nation . Apart from promoting SMEs and providing adequate support the R&D institutions, the government has also ensured to secure the future of industry by placing domestic manufacturing in line to meet the forces’ futuristic demands.
With a rich Aerospace and Defence infrastructure comprising of 9 DPSUs, 52 DRDO set ups and 41 ordnance factories it is admissible to utilize these facilities and boost the capability by enhancing the role of the private sector.
The recent move by the government for the development of Future Industry Combat Vehicles (FICVs) in India under the ‘Make’ category is a commendable step taken towards creating the synergy among the stakeholders. These kind of engagement among stakeholders ensures the automobile sector also to be upscaled to develop niche military combat vehicles. In case of FICV bid, four Indian companies are the stakeholders where three of them are from the private sector and one from the public. However, the newer updated reforms have ensured that even if the public company gets the contract, it is bound to create an ecosystem of suppliers due to the provision of outsourcing to subcomponent supplier. These projects do have the capability to develop SMEs and MSMEs.
For an aerospace and defence industry to thrive successfully, it has to be backed by various electronic, electrical and mechanical sub-component industry, which are the raw materials for this technically and financially rich industry. Considering the timelines, policies in place, availability of supporting industries with skilled workforce, and the modernisation programmes of the armed forces makes India as the future of aerospace and defence industry.
Even though there is a strong manufacturing sector and technological base presence in India, aerospace manufacturing has not been able to enjoy the success like other traditional sectors. However, with depleting squadron numbers, Indian Air Force has time and again raised the requirements to fulfill the void of combat aircraft. Aircraft itself takes a larger pie in the requirements of the forces and commercial airlines put together.
Public Sector Undertakings like HAL and BEL have been the front runners in this sector. The successful flight of SARAS couple of years back has given the ray of hopes in domestic aircraft manufacturing. From the production lines of HAL, 12 types of aircraft with in-house R&D and 14 under license production have taken flight. Though, PSUs have enjoyed the solitary earlier with ever-extending time frames, the private entrants in this sector have supported the state run HAL and other PSUs to deliver quick and better.
In the Indian private sector, Dynamatics Aerospace has one of the largest infrastructures for manufacturing precision aerospace components and airframe structures. Taneja Aerospace and Aviation Ltd manufactures light transport and trainer aircraft, aerostructures, MRO solutions and represents Cessna Aircraft Company, USA for the sale of its aircraft in India. On the outskirts of Hyderabad, at the aerospace and precision engineering special economic zone, TASL has launched the first Sikorsky S-92 Helicopter Cabin made in India.
In Indian Aerospace and Defence industry, the Research & Development focus has remained predominantly in the public domain with state-run institutions like Hindustan Aeronautics Limited (HAL), National Aerospace Laboratories (NAL), Defence and Research & Development Organisation (DRDO), Indian Space Research Organisation (ISRO) and Council of Scientific and Industrial Research (CSIR). To name a few of the success stories of Indian R&D efforts in aerospace and defence is indigenous development of range of missiles including the intercontinental ballistic by DRDO, Light Combat Aircraft and Dhruv-Advanced Light Helicopter by HAL, SARAS and HANSA by NAL.
Due to the availability of the vast human resource, engineers base and scientists at a relatively cheaper investment, makes India to be an attractive destination for R&D. Over the last decade, more than 10,000 foreign organisation have opened their R&D centres in India. While firms like IBM, General Electric and Texas Instruments are engaged in developing new products, other firms are engaged in incremental innovations and their prime objective is to support the existing products introduced in India.
According to the Indian Ministry of Micro, Small and Medium Enterprises (MSME), there are well over 13 million MSMEs in the country and contribute about 40 percent of gross industrial manufacturing value of the country, 35 percent to India’s exports directly, and 8 percent of India’s GDP. Global OEMs have been driven to work in close coordination with SMEs due to the offset requirement. This coupled with the fact that these enterprises have high manufacturing expertise makes SMEs a game-changer in elevating the role of India as an outsourcing destination.
Supply chain integration drives key changes in the way companies communicate with each other, ranging from planning to purchase. One such success story is of Astra Microwave. Astra Microwave has entered into a joint venture (JV) to design and produce RF/microwave components and sub-systems with Bharat Electronics Ltd. (BEL). This partnership with BEL will enhance Astra’s delivery capabilities and market reach.
Having had the geographical advantage of being strategically located between Europe and the rest of the Asia-Pacific Region, India has the potential of being the international hub for MRO needs. Relatively low cost of manpower clubbed with an abundance of skilled workforce in India has made OEMs and other global players to treat India as a future MRO hub.
In general, the scales for MRO is directly proportional on the demand for aircrafts in a particular area.Since the fleet size of Indian forces along with commercial airlines is expected to increase exponentially, the sector is set to witness a thriving business. Also, with MRO in place, Indian aerospace industry will be able to absorb the technology transfer even at niche level for aircrafts as well as components.
India is poised to become one of the largest commercial and defence aircraft market. With increasing passenger traffic and rising military and defence expenditures, the demand for aircrafts is expected to increase even more. Boeing itself expects a demand of between 900 to 1,000 commercial aircraft worth USD100 billion approximately in the upcoming decade. These numbers suggests that a significant portion of business prospect that could add to India, due to the associated offsets.
Reforms on policies, focus on ease of doing business, integration of players from public sector with private, collaboration of MSMEs to global supply chain and ever increasing demand for defence equipment and aircraft have ensured India as their objection and also as destination to keep the business rolling.