India as hotspot investment destination for defence: Deloitte

Jan 11 2013, 16:18 IST
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Government is expected to raise foreign investment limit from 26% to 49% in the defence sector in 2013. (Reuters) Government is expected to raise foreign investment limit from 26% to 49% in the defence sector in 2013. (Reuters)
SummaryGovernment is expected to raise foreign investment limit from 26% to 49% in the defence sector in 2013.

India is poised to become a favorite destination for global defence sector players with total offset opportunity for the commercial segment in the country set to cross $10 billion mark in 2013.

With the government expected to raise the foreign investment limit from 26% to 49% in the defence sector in 2013, the country is likely to witness a rush of investments, as per a recent study by Deloitte.

According to Deloitte Aerospace & Defence outlook 2013, while the global defence industry is expected to shrink, the growth in Indian defence sector is on the surge.

“India continues to be one of the promising aerospace and defence (A&D) markets in the world due to the increasing demand in A&D equipment for the armed forces,” the report says.

The report entails that milestones in certain deals are expected to be achieved in 2013, such as submarines, missiles, and the Indian Air Force Medium Multi-Role Combat Aircraft (MMRCA) and new joint ventures are likely to be signed between Indian private and overseas companies.

According to Nidhi Goyal, director, Deloitte Touche Tohmatsu India Private Limited, “The global defence industry can take advantage of the promising Indian Aerospace & Defence market owing to the increasing demand of A&D equipment by the armed forces."

The government is determined to focus on indigenization with increasing presence of Indian companies and also giving cost advantages relating to basic design and engineering services, components, and assemblies manufacturing.

Indian companies will likely succeed with the help of foreign companies which creates a benefit for both. Once indigenous manufacturing takes root, research and development for the indigenous military industry and civil aircraft is likely to be the other focus area of the Indian government.

“Due to the huge offset requirement and the Indian Government’s objective of building up an indigenous manufacturing base, the global industry has an opportunity to integrate with the Indian industry to set up their manufacturing lines in India, which could be achieved either through joint ventures or collaborations,” Goyal added.

The total Offset contracts of value more than $4.5 to $5 billion have been signed by Indian companies with foreign companies since the offset policy came into effect in 2005. However with the new offset guidelines of 2012 and the assumption of a formal civil offset policy, the total offset opportunity for the commercial segment is to be valued at $10 to 15 billion.

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