India is the third largest economy in the world by Purchasing Power Parity. While the global economic slowdown has forced Governments across the global to pare down their defense spending, India has emerged as the largest importer of defense arms.
It faces enormous security challenges and threats like terrorism, low intensity conflict, nuclear weapons as also Left Wing Extremism.
In the last budget the outlay increased by 12.4% to USD 38.17 billion. The outlay has a direct relation with the GDP and historically Indian Defense capital spending has averaged around 0.7% of the GDP.
With the bottoming out of the Indian economy, defense capex is likely to move higher as the economy picks up as also due to significant pent up ordering. While the opportunity is huge the challenges too are immense.
Any foreign corporation intending to grab this opportunity must acclimatize to the Indian business, political & bureaucratic climate. Right kind of hand holding and guidance by a local partner is a must, particularly in the initial stages.
Defense is in the air again. There is a palpable sign of excitement amongst the Industry players who are suddenly awake to new sense of anticipation as far as defence sector is concerned. After a lull of almost a decade where inaction at large and negative action to some extent was the norm, the industry is looking forward to slew of measures from the new government to kick start the sector out of its deep slumber. And so far government has made right kind of noises. In fact, the new BJP led government’s manifesto explicitly envisages India as an exporter of defense equipments over the next decade. Government has already stuck a right note by increasing FDI in defence to 49% and also enhanced capital expenditure budget by 20%. Well, what it means for domestic defence players? Let’s take a deep breath and soak in the following facts:
The above figures suggest a huge opportunity for not only foreign players but more significantly even for domestic players, given the present government intent to promote the domestic defense industry as also to reduce dependence on imports.
Now, are these mere numbers or are we staring at a tremendous business opportunity?
The anecdotal data as well as common sense approach suggest, the later.
No doubt that Indian top business houses like TATA, RIL, Mahindra, L&T are aggressively eyeing defense as a sunrise sector for coming decade. It is noteworthy that currently Indian Domestic defence manufacturing is distinctly dominated by Public Sector (DPSU) & Govt (OFB) which together account for 90% of defence manufacturing. Here, it is also noteworthy that opening up of largely govt dominated sectors in the past has meant huge business opportunities for private sector, teleocm, media and Aviation being the cases in point.
The above argument clearly suggests a huge door (not window) of opportunities for private enterprises in this now rightly called "Sunrise Sector".