India Defence Market May Grow To $41 Bn By 2022

If the government's push to locally manufacture defence equipment is successful, the sector can fetch close to $17 billion per year from exports in a few years, according to an industry report.

 

It projected that India's defence exports could grow seven times to $41 billion by the fiscal year 2022.

 

India is the world's largest importer of defence equipment with billions of dollars in annual purchases of critical equipment for the armed forces.

 

Foreign ownership in joint ventures in India's defence industry is limited to 49 per cent, but foreign companies say majority ownership would speed up India's drive for its own manufacturing base and ensure quality.

 

Prime Minister Narendra Modi last week said multinational companies (MNCs) could go in for majority ownership in their Indian ventures provided they transfer the technology.

 

"Defence and aerospace exports can touch $16.6 billion if local manufacturing is pushed, while total market for domestic players can grow seven times to $41 billion by 2022 from $6 billion in 2014," says a report by Centrum Group.

 

The report is written by Sandeep Upadhyay, a senior vice president at Centrum Group.

 

Centrum was the first domestic investment bank to offer defence sector advisory services in 2011. It further said that of the $41 billion market, 60 per cent will be domestic demand and 40 per cent will come from exports.

 

Upadhyay projected $620 billion defence budget between 2014 and 2022, of which 50 per cent would be on capex.

 

On the total defence budget, Upadhyay said the cumulative defence spend between 2014 and 2022 may touch around $620 billion and capex will be half of it while the spending on new armament could be around $251 billion with imported equipment spend at $146 billion.

 

The report also foresees that opportunity for domestic companies from arms acquisitions would grow from $4 billion in 2014 to $24 billion in 2022, growing at 23 per cent per annum during the period, as half of the defence equipment is obsolete now.

 

Companies are looking to benefit from last year's foreign investment limit hike from 26 per cent to 49 per cent in the domestic defence industry. This has drawn greater interest from international arms suppliers.

 

US, European and Israeli defence contractors such as Boeing, Lockheed Martin, Airbus, Dassault Aviation and Rafael Advanced Defence Systems have made a beeline to India in recent years in search of deals worth billions of dollars.

 

Modi, however, has said that India should aim to cut defence imports from 60 to 30 per cent in the next five years. It can double its defence output and create hundreds of thousands of skilled jobs as a result, he said.

 

Airbus Helicopters is in talks with Indian companies including Mahindra and Mahindra, Reliance Industries and Tata Group to jointly make military helicopters.

 

The company, part of Airbus Group, is offering to build its light utility AS550 Fennec and the medium lift EC725 for India's armed forces, which are heavily dependent on an ageing fleet of Cheetah and Chetak helicopters.

 

Media reports said Nikhil Gandhi-promoted Pipavav Defence is up for sale and Mahindra and the Munjals of Hero MotoCorp are keen on buying it.

 

When asked about the evolving scenario in the defence sector, investment banker Mahesh Singhi of Singhi Advisors said only those firms with good credibility can thrive in this sector, which is also a must for government support.