India to invest US$ 100 billion in 5 years to replace half of its defence equipment


Senior Member
Feb 12, 2014
India is in the process of replacing 50 percent of its ageing defence equipment, and is expected to invest over US$ 100 billion (Rs 6,700 billion) over the next five years in capital equipment purchases across air force, navy and army. India and other emerging markets are expected to generate aircraft demand estimated at US$ 5 trillion (Rs 335 trillion) in the next 20 years. According to a joint ACMA-KPMG study, 70-80 percent of the defence equipment cost is used in maintenance and upkeep, an opportunity worth Rs 20,000 crore, growing at a CAGR of 9 percent.

About 15-20 percent of this will accrue from air force maintenance, repair and operations (MRO) activities covering sub-assemblies, components and spare parts.

With the objective of facilitating its members diversify into the fast growing aerospace and defence sectors, the Automotive Component Manufacturers Association of India (ACMA) had organised its second Aerospace and Defence Summit on May 15 in New Delhi.

The aerospace and defence sectors tremendous opportunities to the auto component industry in India. Manohar Parrikar, union minister of Defence spoke at the event, “I am delighted that we have been able to meet one-hundred per cent of defence offset obligations last year, and I am setting a target for achieving US$ 2 billion (Rs 130 billion) worth of exports through offset in the next two years.

With world-class quality practices and manufacturing capabilities, the auto components industry in India is well poised to partner with the defence sector to achieve this goal. The government will also create the necessary framework by June 2016, to reform purchasing processes of defence PSUs, which would benefit all suppliers, especially the MSMEs. This will help realise the Government’s vision of Make in India for the defence sector.” To help the auto component sector harness the aerospace and defence opportunity, the ACMA-KPMG study recommends the following: –

Improve ease of doing business with DPSUs – L1 system of selection of suppliers needs to be revisited. Vendor Selection process as followed in the automotive industry, a combination of technical audits, quality and delivery and cost, could be considered. –

Fostering skill development – Government with the support of global aerospace players should spearhead structured skill development programs for SMEs

Support MSMEs – A conducive business environment where gestation period should be short and hassle free as MSMEs do not have the resources to invest and wait.

Infrastructure – India should have 5 to 6 word class aerospace and defence clusters for key sub systems with plug and play infrastructure

Defence offsets – Offset multipliers for sourcing commercial aerospace components from Indian players and MSMEs

Other enabling factors – Key policy expectations to boost Make in India for aerospace and defence components would capture: Create SEZs and Clusters that are plug and play model to attract global investments and encourage component players; developing common infrastructure

Create a technology development fund – Offset multipliers for the component manufacturing JVs created in India by the global suppliers (both commercial aerospace and defence) – Permit 100 percent FDI for investments by Tier1s and OEMs for setting up their assembly facilities in India – promote local sourcing from SMEs – Right tax and fiscal incentives to defence and aerospace component players – improving their competitiveness vis-a-vis global suppliers.

“The vast opportunities offered by the aerospace and defence sectors can be an inflection point in the growth for the auto component industry in India. The Indian auto component industry is well poised to meet the requirements of the global players in this sector who have set up a manufacturing base in the country,” Vinnie Mehta, director general of ACMA added.

“The time is ripe for the auto component industry to amplify its defence production capabilities. Joint efforts between the auto component industry and the Ministry of Defence can help enhance India’s self-reliance and conserve foreign exchange. The positive approach displayed by the government, including liberalisation of FDI norms in the defence sector and clearer licensing requirements, will provide a thrust to domestic manufacturing,” summed up FR Sighvi, chairman, ACMA Aerospace, Defence and Railways Committee. –

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