Indigenisation of Defence: An opportunity in the making

India’s defence needs?

India is located geographically at a very strategic position with vast borders covered by the salty waters of the Indian ocean on three sides and by the great Himalayas in the north, providing our country with a natural shield. But some of its long borders are also shared by enemy nations with nuclear capabilities, so in order to shield its boundaries against any intrusion and threats, its defence and security needs are also very high.

Historically India spent approximately 2-4 % of its GDP and more than 10% of its annual budget on defence. This makes India 3rd largest country in defence spending after USA and China.

Source: World Bank, SIPRI

How much money is being spent by the defence forces?

As per recent data, the total outlay of India’s defence budget stands at approx ₹5.25 Lakh Crores. Of this Indian Army gets approx 58% share, Navy gets 16% share, Air Force gets 19% share while other Paramilitary forces get approx 6% outlay.
For modernisation purposes, of its individual budget Army spends approx 8%, Navy spends 54% and Airforce spends 52%. 

Most of this money goes into procuring defence equipment like aircraft, missiles, platforms, etc. As India doesn’t have the indigenous capability to manufacture most of this equipment due to lack of technology and expertise in manufaturing; hence, most of the equipment is imported from foreign countries with expertise in producing them. 

Who are the largest defence equipment exporters to India?

Historically Russia has been the largest defence partner to India but due to the recent Rafale deal, France has become one of the top contenders for the spot. So Russia, France and the USA are India’s biggest suppliers of arms, accounting for 46%, 27% and 12% of the country’s imports in the last five years

Source: Statista

Government Intervention in the sector

Government of India has acknowledged this problem and has allowed FDI in defence sector by first raising the cap from 26% to 74% through automatic route and 100% through MoD’s approval so that manufacturing and technology transfer can take place. To support this cause further, a negative import list of 209 items has been created, which are not allowed to be imported. These items include artillery guns, assault rifles, corvettes, transport aircraft, Light combat helicopters (LCHs) and even wheeled armoured fighting vehicles (AFVs).

This move has benefitted domestic companies, and the import of defence equipment is seen to be declining steadily over the last few years, saving India significant forex reserves and boosting domestic competitiveness for manufacturing these products.

Source: PRS, MoD

Way forward

India’s defence needs are not going to reduce anytime soon and with the government’s push to become more reliant on indigenous production capabilities, companies in this sector may do well. Many defence related PSU’s and private listed companies have already benefitted from the sector’s growth in last few years and more companies are eager to participate in this sector.

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Recently a statement was given by our hon’ble Defence Minister in the 95th Annual Convention of FICCI in which he said that,”Government is working and committed to increasing the defence production target from current $12 billion to $22 billion by 2025. You (industry) can imagine, with this kind of growth, how many opportunities will be available for the Indian industry”, assuring complete policy support to the sector in the time to come.

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Indigenisation of Defence: An opportunity in the making

Vamshi Krishna
Indigenisation of Defence: An opportunity in the making

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Vamshi Krishna