This presentation gives insights into the Indian defence sector and its workings. The increased role played by the defense offset policy and FDIs are elaborated. The latest amendment in the Indian defense offset policy and its implications on development of local sourcing and SMEs have been examined.
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Defense procurement in India
1. May 24, 2013
Procurement Consulting – Brickwork Sourcing
Defense Procurement in IndiaDefense Procurement in India
Brickwork India (Confidential)
www.brickworksourcing.com
2. India has become an integral part of the global supply chain of some of
the biggest defense component manufacturers in the world.
India is expected to spend 100 billion USD over the next decade to
modernize its armed forces, particularly on capital procurement of new
weapons and other systems.
The Indian defense budget has been increasing over the years and for FY
2013-14 it has been hiked to 37 billion USD, this amounts to an increase of
5.3 percent from the previous year.
Defense deals by the Indian government over the last three financial
years, starting from 2009-10, have seen nearly 40 billion USD being spent.
One recent event which highlighted the growth of the Indian defense
sector was Aero India 2013 which was touted as the biggest in Asia with
607 defense companies and 78 overseas delegations in attendance.
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Current Scenario
3. The latest Indian defense offset policy amendment in 2012 stipulates that
any deal for defense equipment to be supplied by a foreign company,
worth over 55 million USD, would attract the offset clause under which 30
to 50 percent of the contract costs would have to be ploughed back into
India.
The latest defense offset amendment aims to promote and develop local
defense sourcing; translating into a total offset opportunity for the native
commercial segment valued at 10 to15 billion USD.
Offset contracts valued at more than 4.5 to 5 billion USD have been
signed between Indian companies and foreign partners since 2005.
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Defence Offset Policy
4. To promote investments in the Indian defense industry and collaborations
with Indian companies, the defense offset Policy permits up to 49%
foreign direct investment (FDI) by foreign defense companies.
FDI has led to the development of a 10 billion USD native defense industry
with product and as well as component manufacturing capabilities. There
have been more than 40 noteworthy joint ventures and partnerships
between international firms and major Indian defense players such as
Tata, Mahindra & Mahindra and L&T. Technology collaborations in Indian
defense are also on the rise.
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Foreign Direct Investment
5. Market Potential
US aerospace major Boeing, estimates to strike defence deals of
approximately 20 billion USD in India.
Although the hike in the defense budget has been moderate for the FY
2013-14, there is enough evidence to suggest that there is bound to be
substantial growth on account of the Defense Offset Policy and the
increase in FDI.
Brickwork Sourcing provides end-to-end procurement research and
consulting services to clients from all major continents. It specializes in
assisting clients with low cost country sourcing as well as Indian market
entry assessments.
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available" basis and are without warranty of any kind. While Brickwork relies on sources that are believed to be reliable, it cannot rule
out errors in judgment or application. The document is intended for “information” and “general guidance” purposes only.” Investment
decisions and/or other decisions based on the conclusions and potential strategies mentioned in the document are not necessarily
endorsed by the Brickwork management.” 6
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