With the country?s defence budget likely to touch $50 billion in the next three years, Indian IT companies are working overtime to forge partnerships with aerospace majors. Software firms are looking to leverage opportunities arising from offset obligations of multinational defence companies as adoption of IT for communication, human and machine management in armed forces increases.
Under the offset policy, foreign defence manufacturers have to buy from local players or enter into joint ventures so as to pass back 30% of the cost of the contract.
Wipro recently announced a tie-up with an European organisation for manufacturing and global supply of actuators for landing gears. Further, Wipro and Saab recently entered into a partnership to pursue opportunities in the LEDS (land electronic defence systems) area. In October last year, Saab India Technologies inaugurated a research and development centre in partnership with IT firm Mahindra Satyam in Hyderabad. The centre?s key areas of development include software engineering, electronic engineering and mechanical engineering. Mahindra Aerospace and Mahindra Satyam also have an MOU for trade partnership with the Eurocopter Group and its Indian subsidiary, Eurocopter India. The JV focuses on customisation of civil helicopters, manufacturing of sub assemblies and engineering.
?Today, outsourcing in the aerospace and defence sector is growing manifold. We expect the revenue from this industry segment to continue to rise in line with the significant growth that we are predicting, based on the renewed spends in emerging markets like India and West Asia,? says Vinay Rawat, vice-president, aerospace and defence, Product Engineering and Mobility Solutions, Wipro Technologies. Wipro, which provides services for development of flight control systems, in-flight entertainment systems, hydraulic system and communication network, is looking at expanding its footprint in the sector.
According to a recent Frost & Sullivan report, between 2011 and 2015, India?s defence budget is expected to grow at more than 8% year-on-year. India is projected to spend approximately $54 billion on foreign arms and equipment procurement, which will also generate offset opportunities worth $18 billion. The IT spend is calculated at 1% of the total outlay.
?There is a huge focus on modernisation and upgrades, particularly in the Air Force. Since the Kargil War, the Air Force has fallen behind in upgradation and is also the most dependent on suppliers outside the country, compared to the Navy and the Army. Indian companies should tie up with MNCs, utilise offset opportunities and leverage the expertise that arises from such synergies,? says Karthikeyan Natarajan, senior vice-president and global head (integrated engineering), Mahindra Satyam.
Modernisation of the forces aims to equip soldiers with hand-held computing devices, encrypted communication, thermal sensors and night-vision devices, as well as to integrate these devices with the command, control, communications, computers and intelligence systems at the command level for better decision-making.
?Given that India’s armed forces is one of the largest in the world, the modernisation programme will create both long-term and large-scale opportunities for the Indian IT sector,? notes Ratan Shrivastava, director, Aerospace & Defence Practice, Frost & Sullivan. ?All modern weapons and equipment are IT-intensive.?
In one of the biggest defence deals, India selected France?s Dassault Aviation in February as its preferred bidder for a $10-billion contract to supply advanced combat aircraft. According to the terms of the bid, the first 18 aircraft will be built solely by Dassault while the rest is to be built in partnership with an Indian company.
?The Indian defence market is quite promising with offset opportunities arising from recent deals like the Rafale-Dassault deal. We are also hopeful of a more service provider-friendly offset policy coming up in the near future. We are quite bullish on the potential in the aerospace and defence space and are looking forward to robust growth in the medium term,? says Sandeep Kishore, executive vice-president, engineering & R&D Services, HCL Technologies.
To cash in on the opportunity, Indian IT players are investing in developing the aerospace and defence vertical. ?There are a few things that we are doing to grow in this space, one of them being looking at acquiring high technology companies in countries like US, France, Fermany, Spain, Italy, where a lot of the expertise lies, and partnering with MNCs,? says Mahindra Satyam.
Dhiraj Mathur, executive director and leader, defence and aerospace practice, PwC India, points out that the defence industry in India offers tremendous potential for both top-tier IT players and niche operators. ?In the last two to three years, Indian companies have invested large amount in developing the vertical,? he says.
The demand for secure and real-time communication between units on the battlefield among the three service arms and between the armed forces and the back-end staff will be the most important driving factor for the combat system segment, notes the Frost & Sullivan report.
The lack of expertise in combat systems will rein in the possibility of higher growth rates. IT firms do not possess the knowledge base and the expertise necessary to independently develop critical combat systems such as tactical communications systems or battlefield management systems. ?While currently, the joint venture or consortia strategy is being adopted to overcome this challenge, it is imperative that market participants invest in R&D to develop these capabilities,? advises Shrivastava.