The modernisation of the armed forces will lead to a huge opportunity for the manufacture of defence equipment pegged at $245 billion over the next decade, according to Citi Research, reports fe Bureau in New Delhi. Among the drivers of this opportunity are the inclusion of the defence sector in the government’s ‘Make in India’ initiative, a higher FDI cap for the defence sector of 49%, a bigger focus on procurement of locally made equipment, more liberal licensing policies and approvals for projects worth more than $28 billion to kick-start the sector. The estimate of $245 billion builds in an annual defence capex at 0.68% of GDP.
Spends on defence have been steadily falling as a share of GDP, with the result that the country’s military outlay is just a fourth of China’s was in 2013. Military spending of China grew at a CAGR of 18% over 2000-2013 against 10% for India.
Between FY08 and FY14, the average capex has been just 38% of the defence budget; for FY16 too, the capex of $15 billion is at similar levels. The Citi report notes that capex includes committed liabilities, which leaves little room for buying equipment. India today is the world’s largest importer of weapons, accounting for 14% of the total between 2009 and 2013; in 2014 Saudi Arabia overtook India.