Naperville, IL -- (SBWIRE) -- 03/11/2013 -- This report is the result of extensive market and company research covering the Indian defense industry, and provides detailed analysis of both historic and forecast defense industry values including key growth stimulators, analysis of the leading companies in the industry, and key news.
Introduction and Landscape
Why was the report written?
The Future of the Indian Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2018 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain a market share in the Indian defense industry.
What is the current market landscape and what is changing?
The Indian defense market offers numerous market opportunities to both domestic and foreign manufacturers. As one of the largest defense equipment markets in the world, the country is expected to spend US$119.3 billion on capital acquisition alone during the forecast period. In the next two years, the country is forecast to spend a significant amount of money on homeland security, intelligence, and cyber security, primarily due to an increasingly hazardous geopolitical environment, the threat of terrorism, and internal security concerns. Some more factors that are likely to influence the future growth course of the defense sector in India are further development of the defense procurement process, the formation and implementation of a defense industrialization strategy to coordinate the use of offsets, transfer of technology, FDI and revisions to the taxation regime, and incentives.
What are the key drivers behind recent market changes?
Indian defense expenditure is primarily driven by the need to replace the country’s aging military hardware and to protect India from its hostile neighbors. Strong economic growth has also fueled India’s defense industry growth. Moreover, given that the Chinese market is closed to the world, India remains the primary place within Asia where major defense systems are sold.
What makes this report unique and essential to read?
The Future of the Indian Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2018 provides detailed analysis of the current industry size and growth expectations from 2014 to 2018, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.
Key Features and Benefits
The report provides detailed analysis of the current industry size and growth expectations from 2014 to 2018, including highlights of key growth stimulators, and also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.
The report includes trend analysis of imports and exports, together with their implications and impact on the Indian defense industry.
The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.
The report allows readers to identify possible ways to enter the market, together with detailed descriptions of how existing companies have entered the market, including key contracts, alliances, and strategic initiatives.
The report helps the reader to understand the competitive landscape of the defense industry in India. It provides an overview of key defense companies, both domestic and foreign, together with insights such as key alliances, strategic initiatives, and a brief financial analysis.
Key Market Issues
Introduced under the DPP 2005 and developed further in 2012, the offset policy encourages the indigenous Indian defense industry to play a major role in meeting the needs of the armed forces by restricting FDI to 26%. It is expected that small- and medium-sized enterprises will benefit from the offsets, leading to a larger presence of private companies in the defense industry. Additionally, the revised DOG’s 50% indigenous requirement and timeframe to achieve that will have a negative impact on the domestic defense industry. It is a known fact that very few Indian companies can offer products with 50% or more indigenous content. The stipulated time frame to achieve the same is not encouraging either as Indian companies are now required to prove the indigenous content at the time of submission of technical bids, which implies they need to have 50% indigenous content even before the actual production begins. Far from being realistic, this move also discourages any Indian company that wants to compete at the global level.
Insufficient information and the lack of clear future plans have been key challenges for both the private sector and foreign companies, in planning the development of research and development technology or the formation of joint ventures. Although the MoD has agreed to provide a public version of the long-term plan, its effectiveness remains to be seen. One of the key objectives of DPP 2009 is to enable transparency and integrity in all defense industry acquisitions. To ensure this, the Defense Acquisition Council (DAC), India’s supreme defense procurement agency, has recently approved a fifteen year Long Term Integrated Perspective Plan (LTIPP) 2012-2027. The plan defines the acquisition road map for the three forces for the next 15 years. Only the Indian Navy had a perspective plan while the IAF and the army had never had such a practice. Based on the new LTIPP, a technology perspective capability road map would be made and shared with DRDO, defense public sector undertakings and the industry to enable advanced planning.
Since the early 1970s, the Indian defense procurement process has included corruption, delays, and bureaucratic hurdles, due to the monopoly of the civilian bureaucracy and politicians over the purchase decisions of the armed forces. Although the armed forces are in charge of conducting trials on shortlisted equipment and forwarding their recommendations to the Ministry of Defense (MoD), any financial negotiations are conducted by civilian officials. This gives rise to the opportunity for corruption, by way of bribes and collecting money for election funds. Although India is one of the only countries to ban middle-men and brokers from operating, they are unofficially involved in almost every deal negotiated with international companies for the importation of defense equipment. Moreover, in many cases, equipment trials and negotiations drag on for decades. For instance, the IAF’s acquisition of advanced jet trainers (AJTs) has been delayed by nearly a quarter of a century. Although the requirement for Hawk trainers was raised by the air force in the early 1980s, the deal could only be signed with BAE in March 2004, with the delivery of the first aircraft in 2009. In early 2013, the Italian firm AgustaWestland emerged at the center of a controversy over allegations of paying kickbacks in the INR 3600 crore (US$ 663 million) VVIP chopper deal. Italian authorities have already made arrests during an investigation into bribes allegedly paid in 2010 by AW's parent company Finmeccanica for the deal involving the supply of a dozen helicopters for the intended use of Indian VVIPS including the Prime Minister and the President.
In order to cater to the Indian defense industry, it is essential that companies develop advanced low-cost technology solutions. This is especially true in the middle tier, where the degree of sophistication is not as high as it could be. Due to low labor and infrastructure costs, the defense products developed in India are generally very competitively priced compared to imports. An example of this is HAL’s advanced light helicopter, the Dhruv, which only costs US$5 million, one-third of the price of similar helicopters available from mature markets. In 2009, HAL secured a notable order for seven Dhruv helicopters from Ecuador, despite intense competition from international vendors such as Bell and Sikorsky. However, Ecuador has expressed dissatisfaction that these choppers are becoming a cause for concern due to poor after sales service, expensive spares, and even over-invoicing.
India’s defense imports increased considerably during 2007–2011, making it the largest global defense importer in 2011. The country’s imports constituted 8.5% of the total global arms transfer in 2011. The government’s modernization plans, combined with the external threats faced by India, have led to the country requiring a large amount of imports to fulfill its defense requirements. Since India’s domestic defense industry is limited, large amounts of its defense requirements are expected to continue being imported over the forecast period.
The Indian defense expenditure is primarily driven by the need to replace the country’s aging military hardware and to protect India from its hostile neighbors. Strong economic growth has also fueled India’s defense industry growth. Moreover, given that the Chinese market is closed to the world, India remains the primary place within Asia where major defense systems are sold.
India’s defense industry is still in its early development stage, and defense exports are limited to a few neighboring countries and less developed nations such as Mauritius, Bangladesh, Nepal, and Indonesia. During the review period, ships, aircraft, and sensors were the three-most exported defense goods. Most of the current defense exports in India are offered by public sector companies. Principal exporters include Bharat Electronics, Bharat Earth Movers, Ordnance Factories Board, and Hindustan Aeronautics Limited (HAL). The country’s main exports include military hardware such as rifles, rockets, radars, and domestically developed helicopters and planes such as the light transport aircraft, Dornier 228, the advanced light helicopter, Dhruv, and the light attack helicopter, Lancer.
The DAAM has been issued by the Ministry of Home Affairs (MHA) in order to regulate the production of arms and ammunition in the private sector. The following highlights the key points under DAAM:· The private sector is permitted to manufacture arms on a limited basis only and on the issue of an industrial license by the Department of Industrial Policy and Promotion (DIPP) · DIPP licenses are only issued to private companies agreeing to invest US$11 million (INR500 million), subject to maximum 26% FDI, and equipped with advanced manufacturing capabilities. The draft policy also prohibits the participation of small business units in arms and ammunition manufacturing· The supply of arms and ammunition is restricted to the Central Paramilitary Forces, and Defense and State Governments on a tendering or export basis. Sports weapons and non-prohibited bore (NHB) weapons can, however, be sold to license holders through registered arms dealers· The manufacturing quota of existing firms will not be enhancedDIPP has the authority to make changes in the draft policy as and when required
Lockheed Martin Corp, BAE Systems Plc, Thales, Mazagon Docks Ltd, Hindustan Aeronautics Ltd, Bharat Electronics Ltd, Bharat Dynamics Ltd, ,Ordnance Factory Board ,BEML
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