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Highlights of the CII-Deloitte report on Indian defence Industry

Foreign Defence Suppliers are Seeking to Incorporate the Indian Defence Industry into Their Global Supply Chains: CII-Deloitte Defence Report
Highlights of the CII-Deloitte report on ‘Prospects for Global Defence Industry in Indian defence market’:

· Indian defence procurement would rise to an estimated USD 42 Billion (including USD 19.20 bn for capital acquisition) which could make India as one of the most attractive markets in the World.

· The defence capital expenditure budget is expected to achieve a compound Annual Growth Rate (CAGR) of 10 Percent from 2011 – 2015.

· Total indigenous production over 2011-2015 would need to expand from approx USD 30 bn to more than USD 70 bn in the span of 5 years to be able to achieve 70 percent indigenization by the year 2015. Defence industry would need to expand by an average of 30 percent a year over the next 5 years.

· It is estimated that India is likely to spend nearly USD 80 bn USD for next five years (2010-2015) on Capital expenditure.

· The Report provides Information to global investor firms to understand the Indian defence requirements and domestic industry capabilities and opportunities in the four key domains vis maritime, land , aerospace and electronics.

Mr. R.K. Singh, Secretary (Defence Production), Ministry of Defence, Government of India today released a CII-Deloitte report on ‘Prospects for Global Defence Industry in Indian defence market’ at Eurosatory 2010 exhibition in Paris. Mr Singh emphasized that the Buy and Make (Indian) Category is as an opportunity for foreign players to partner with the Indian Defence industry. He further stated that this new category would enhance the formation of JVs and Technology partnership between the Indian and the Foreign defence industry. While responding to a query he clarified that the Ministry of Defence is in favour of continuing with the FDI limit of 26 percent.

Over the past decade, the Indian Ministry of Defence has put into motion plans for an unprecedented modernization program of its defence capabilities. In this context, India has embarked on a major defence acquisition program, aimed at increasing the size, capability and self-reliance of its Defence Armed Forces. The report provides that the aerospace and defence sector is growing at an unprecedented rate and emerging as a key participant in the Asia Pacific region.

Report also provides indicative list of acquisition plans. In Union Budget 2010-11, expenditure of about USD 32.03 billion has been earmarked for national defence. More than USD 42 billion in total defence expenditure is targeted by 2015, of which approximately USD 19.20 billion would be expected to be spent on capital equipment for the Defence Armed Forces.

Mr Chandrajit Banerjee, Director General, Confederation of Indian Industry said “While it is clear that India is seeking a high level of self sufficiency in delivering its ambitious defence re-equipment and expansion program, it is also evident that there will be a high level of reliance on overseas interests to supply the necessary technology in a number of areas. Foreign OEMs are now looking at India as a critical market as well as a potential manufacturing partner.”

Mr. Gurpal Singh, Deputy Director General CII stated that India is gradually becoming a key outsourcing hub for the global defence industry. The continuous revisions of the Defence Equipment procurement procedures in the recent past suggest the intent of the Indian Government to streamline the procedures and make the system more transparent and speedier.

Nidhi Goyal, Director - Aerospace and Defence in Deloitte on release of the report says that “India is considered as the next destination of manufacturing given country’s strength like wider supplier base, low cost manufacturing, persistent focus on infrastructure development, huge pool of skilled workforce and increased penchant for enhancing competitiveness by the respective domestic firms”.

India has established a notional target for 70 per cent of new acquisitions in the future to be sourced from indigenous production. Ms Nidhi Goyal says “to meet the target of 70% indigenization, local industry should achieve an average growth rate of 30% a year over the next five years”. She further says that the current offset contracts are still not sufficient for Indian industry growth and hopefully the target for offset contracts at USD 10 billion by 2011 will give further boost to the industry.

The sheer volume of planned expenditure is expected to create new opportunities for foreign firms, as total spending will grow in absolute terms. India is also host to a mature manufacturing sector, which means it will often be able to offer more cost-competitive terms for large platform builds.


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