The aerospace and defence sector is a major focus area for the government and one of the biggest expected beneficiaries of the Make-in-India programme. Although the sector has yet to attract the high levels of foreign direct investment (FDI) anticipated from the programme, industry analysts are positive that further corrective measures by the government will bring in the much-needed infusion of growth catalysts by facilitating new strategic alliances.

Research by FICCI-Centrum estimates the capital expenditure on defence in India to nearly quadruple from $15.3 billion in FY15 to $57 billion in FY22. Looking at the offset and domestic capital expenditure, and after-market expenditure estimates, the total defence opportunity for Indian PSUs, corporate, and SME entities stands at $9.5 billion in FY15and is expected to grow to $41.7 billion by FY22.

Contrary to popular perception, the success of the Make-in-India programme hinges not merely on manufacturing in India, but on three essential constituents—‘engineering in India’, ‘manufacturing in India’, and ‘after-market support in India’—which represent the complete value-chain. The absence of any one of these vital constituents leaves Make-in-India no different from the similar programmes introduced in the past. Collaborations for engineering are a prerequisite to facilitating technology transfer and absorption, as are partnerships for after-market support to building and growing capabilities in full product life-cycle management.

According to recent research published by NASSCOM, the overall engineering research and development (ER&D) spending in India is projected to grow at an impressive CAGR of 10-13% from 2014 to 2020. India is expected to account for 40-50% of the global offshore aerospace ER&D by 2020—and that is despite a decline in the global spending observed in this sector in the last 3-4 years.

Indisputably, aerospace ER&D in India has matured over the decades. The leading aerospace manufacturers, such as Pratt & Whitney, GE, and Rolls-Royce, are all engineering in India. The industry has come a long way in the product-engineering value-chain, from providing peripheral services to securing high-involvement collaborations for developing whole subsystems, systems, and solutions. New business models are seeing Indian entities take on the complete risk for product development, and offer solutions ranging from concept development to manufacturing, to post-production engineering, including maintenance, repair and overhaul (MRO), and sustenance. The evolution from project-based engagements to long-term collaborations with aircraft manufacturers is truly commendable, and speaks volumes of aircraft manufacturers’ confidence and trust in Indian ER&D providers.

The following are the key reasons why aerospace ER&D in India is poised to play a strong role in the Make-in-India initiative:
* Local engineering talent/resource scalability: India, over the years, has developed a skilled, scalable pool of aerospace engineers, who have the requisite experience and innovative mindset critical to delivering cutting-edge solutions to the leading global aerospace manufacturers.
* Asia-Pacific as an aviation hub: With Asia-Pacific emerging as an aviation hub, ER&D providers in India have an opportunity to collaborate with aircraft manufacturers to provide local engineering support.
* Cost focus beyond arbitrage: In addition to the traditional cost-arbitrage advantages, Indian aerospace ER&D providers are adept at providing value-engineering solutions to help lower the cost of production and maintenance—both of irrefutable importance in the price-sensitive, yet quality-conscious Asia-Pacific region.
* Better IP protection record: Indian ER&D providers have a relatively clean record in ensuring IP protection—something that is of paramount value to partners, in an era where proprietary knowledge is a veritable currency.
* Government incentives: Last but not the least, the Make-in-India programme has extended a range of benefits, including tax relief and increased limits of investment, to global aerospace manufacturers to collaborate with Indian ER&D providers. The Union government is reportedly looking to broaden further its incentives for FDI in defence.
Underpinning the enthusiastic response to Make-in-India is the industry’s pent-up demand for policy reforms. As aerospace manufacturers look up to India in the quest for smaller carbon footprint, reduced aircraft weight, lower engine noise, increased fuel efficiency, and faster time-to-market, ER&D providers in the country are raring to take on newer challenges and demonstrate themselves as trusted partners for innovation and growth. What is required now is well-rounded opportunities across all three constituents of making in India—engineering, manufacturing, and support.

The author is founder & executive chairman, Cyient, and chairman, NASSCOM. Views are personal