This is a best prospect industry sector for this country. Includes a market overview and trade data.
Last Published: 8/5/2019
Overview

Units: $ millions

 

2016

2017

2018

2019(Estimated)

Total Local Production

$27,343

$30,643

$32,320

$33,038

Total Exports

$5,395

$5,401

$5,796

$7,461

Total Imports

$6,770

$10,526

$11,307

$10,819

Imports from the US

$223

$758

$359

$377

Total Market Size

$28,178

$35,768

$37,831

$36,396

(total local production= total expenditure (govt.) – total exports); (total market size =(total local production + total imports) – total exports)
Data Sources: Ministry of Defense, Ministry of Commerce & Industry

Note: Because this industry has not been well documented in the Indian context, the estimates of industry size often vary significantly.
Imports from the U.S.:  United States Census Bureau

India has the third largest armed forces in the world and plans to spend billions of dollars on defense acquisitions over the next several years.  India is the third largest defense spender after the United States and China, according to Jane’s HIS Markit. Due to an underdeveloped defense manufacturing sector, India is one of the largest importers of defense equipment. India imports approximately 60 percent of its defense requirements, according to the Government of India – making India one of the most attractive markets globally for foreign defense manufacturers. 

U.S. companies have had increasing success in the Indian market over the past ten years, and India has procured over $18 billion in equipment including: Boeing Apache and Chinook helicopters, P-8I maritime surveillance aircraft, and C-17 heavy transport aircraft; Lockheed Martin C-130 aircraft; and BAE M-777 howitzers. 
The United States has become India’s #2 defense supplier following Russia.  Foreign suppliers also sell subsystems, components, and parts to Indian OEMs.  As U.S. companies such as Lockheed Martin and Boeing expand manufacturing operations in India this should create additional opportunities for U.S. Tier 2 and Tier 3 suppliers.

Following the U.S. designation of India as a Major Defense Partner in 2016, the U.S.-India defense relationship has continued a positive trajectory.  The defense relationship has emerged as a pillar of the U.S.-India strategic relationship and an important driver to the overall bilateral relationship.  In 2018, the U.S. Department of Commerce announced Tier 1 Strategic Trade Authorization status (STA-1) for India, enabling a license exception for many U.S. exports to India subject to the Export Administration Regulations (EAR). The Communication Compatibility and Security Agreement (COMCASA) was also signed in 2018, which will facilitate interoperability and enhance information and intelligence sharing. The Indian and U.S. armed forces continue to expand their schedule of bilateral and joint military exercises.

The defense sector continues to be a high priority for the Indian government.  India’s Finance Minister, Nirmala Sitharaman, in her Union budget said, “Defense has an immediate requirement of modernization and upgradation.  This is a national priority. For this purpose, import of defense equipment that are not being manufactured in India are being exempted from the basic customs duty.”  The 2019 annual defense budget (excluding defense pensions) was over $44 billion and increased approximately 6.8 percent.  In 2018, India issued the Defense Production Policy 2018 to promote public and private sector production and encourage the participation of medium and small enterprises in defense production.  India announced a new Defense Industrial Corridor program with incentives to attract manufacturers and suppliers.  The first corridor is in the south Indian state of Tamil Nadu and the second corridor in the north Indian state of Uttar Pradesh.  

The Indian defense sector has historically been dominated by state-owned enterprises, known as Defense Public Sector Undertakings (DPSUs) and Ordinance Factories that report to the Ordnance Factory Board.   These DPSUs and ordnance factories provide about 90 percent of the total domestic defense manufacturing output, according industry sources.  India began allowing private sector participation in defense manufacturing in 2001.  While the Indian DPSUs and private sector OEMs produce combat aircraft, naval vessels, heavy trucks, and other military equipment, they invest little in research and development, resulting in slow development of new technologies.  As a result, India’s defense industrial base is underdeveloped and has difficulty supplying the demand for modern and next-generation equipment.

Although India has become one of the world’s top defense importers, the Prime Minister made it a priority to create a robust defense industrial base under the “Make in India” initiative, announced in 2014. Under this initiative, and with continuing privatization efforts, large Indian business conglomerates are entering the defense sector.  In June 2015, India announced that the DPSUs would no longer receive preferential customs and duties treatment, further encouraging private sector investment.

In 2016, the Ministry of Defense released the first five chapters of its Defense Procurement Procedure 2016 (DPP-2016), announcing several modifications to institutionalize, streamline, and simplify the procurement procedures to promote India’s defense sector.  DPP-2016 prioritized the promotion of locally designed, developed and manufactured defense equipment and encouraged increased participation by Indian companies, particularly small and medium enterprises.  The final chapter was released in May 2017, which describes the rules and processes for the “Strategic Partnership” model (SPM) to develop capacity in strategic defense subsectors.  Under the SPM,  Indian and foreign OEMs will be selected by the Ministry of Defense to partner with each other to coproduce strategic equipment including fighter aircraft, submarines, helicopters, and armored fighting vehicles and develop an eco-system of domestic manufacturers and suppliers.

Under the “Make in India” program, there are six broad procurement categories with the Indigenously Designed Developed and Manufactured category being the most preferred acquisition option.  The six categories are: 
  • Buy (Indian – Indigenously Designed Developed and Manufactured): Direct purchase from an Indian vendor whose products meet indigenous content requirements.
  • Buy & Make (Indian): Purchase from an Indian vendor (including an Indian company forming a joint venture or establishing a production arrangement with an OEM), followed by licensed production or indigenous manufacture in India.
  • Buy (Indian): Direct purchase from Indian vendors whose products meets minimum indigenous content requirements. 
  • Buy & Make: Purchase from a foreign vendor followed by licensed production/indigenous manufacture in India. 
  • Buy (Global): Purchase from foreign or Indian vendors. 
  • Make (Strategic Partnership Model): Indian industry and foreign industry (OEMs) will be selected by the Ministry of Defense to partner with each other to produce strategic equipment in India.
There is also a “Make” category that can be pursued separately, in sequence or in tandem, with any of the first five categories.  Acquisitions in the “Make” category must be designed, developed and manufactured by an Indian vendor.  Candidates for this category are selected early in the planning and are therefore prepositioned ahead of all the other categories.

Leading Sub-Sectors
Land systems:  The Future Infantry Combat Vehicle (FICV) program aims to meet the requirement for over 2,100 combat vehicles.  There are additional opportunities in field artillery modernization (self-propelled howitzers and fire control systems), small arms and crew-served weapons, and precision guided munitions and surface to air missiles.

Maritime systems:  We expect to see more demand for fast patrol craft, while the Indian Navy is also planning to build more submarines and begin construction of a second indigenous aircraft carrier.  The Navy also has expanding requirements for fixed and rotary wing aircraft.
Air Systems and Air Defense:  There is demand under “Make in India” for coproduction of aircraft.  There is also demand for unmanned aerial systems of all sizes and capabilities, along with missiles of various ranges.  The Ministry of Defense is pursuing air defense systems and close-in weapon systems to provide point defense against ballistic projectiles, missiles, and other air threats.  The Ministry of Defense also hopes to expand and further develop their rotary wing and unmanned aerial system (UAS) fleets.

Maintenance, Repair, and Operations (MRO):  With aging platforms and equipment being used by all the services, as well as the procurements of new advanced systems, the requirement for more robust MRO capabilities is increasing.

Defense Electronics: The Indian defense electronics sector will grow to an estimated $70 billion market in the next 15 years, according to Indian Infrastructure magazine. U.S. expertise can be an advantage in land systems (infantry combat vehicles), air systems (UAS and surveillance systems) and naval systems (conventional submarines, aircraft carriers and air systems).

Opportunities
Given the Indian government’s strong preference for products designed and manufactured in India, many U.S companies are now implementing strategies to develop partnerships, cooperation, and supply chains within India to meet future defense requirements.  Meaningful partnerships with local players and strong supply chains with local companies can help market access. 

Tata and Mahindra already have entered into joint ventures with U.S. defense firms.  Reliance Group, Adani Group, Larsen and Toubro, and Kalyani Group are also major players in the sector.  Several major Indian OEMs and tier-two companies seek U.S. suppliers and partners.  Lockheed Martin and Tata Advanced Systems (TASL) announced an agreement in 2018 to produce of F-16 wings in India for export, and Lockheed Martin is working with Tata as a strategic partner to offer the F-21 fighter aircraft to the Indian Air Force. In 2018, Boeing announced a partnership with Hindustan Aeronautics Limited (HAL) and Mahindra Defence Systems (MDS) to offer the F-18 Super Hornet.

Under DPP-2016, the Government made changes to encourage participation of foreign OEMs in the Indian market.  The new policy made the process for obtaining industrial licenses easier and moved from a standard lowest bidder (L1) model to a cost & technical assessment (L1-T1) model with up to 10 percent credit. To simplify the regulations governing foreign direct investment (FDI) and to make India an attractive destination for foreign investors, the government raised FDI limits from 26 to 49 percent in the sector, with up to 100 percent FDI possible if there is “modern technology” transfer. 

While the Indian defense market offers great potential, India is a challenging market that requires patience and persistence.  Defense procurement timeframes are long.  There can be poor transparency in the procurement process and offset regulations can be challenging to navigate and manage on extended timelines.  Poor infrastructure and skills gaps pose manufacturing challenges.  There can also be substantial payment delays. Having a top-notch local team is a key factor for success in India.

Export Promotion Opportunities
The Defexpo India 2020 trade show is the leading defense trade event in India and the region and is expected in the February-March timeframe (dates and venue TBD). The 2018 show drew participation from around 677 exhibitors, including 154 international exhibitors and 523 Indian exhibitors. Kallman Worldwide organized a successful U.S. Pavilion for Defexpo 2018 and Aero India 2019, and is planning a U.S. Pavilion for Defexpo 2020. The U.S. Commercial Service is proud to support the U.S. Pavilion at Defexpo 2020: https://www.kallman.com/shows/defexpo-2020

New RFI and RFP opportunities are listed on the tenders of the India and Central Public Procurement Portal listed below under “Web Resources.”  Defense ProAc Biz News also lists future projects.

For more information about opportunities in this sector contact U.S. Commercial Service Industry Specialist: Nisha Wadhawan at Nisha.Wadhawan@trade.gov

Web Resources
Government of India Ministry of Defense  http://mod.nic.in/
Department of Defense Production  http://ddpmod.gov.in/
Indian Army  http://indianarmy.nic.in/
Indian Navy  http://indiannavy.nic.in/
Indian Air Force  http://indianairforce.nic.in/
Border Security Force (Ministry of Home Affairs)  http://bsf.nic.in/
Central Industrial Security Force (Ministry of Home Affairs)  http://www.cisf.gov.in/
Tenders India  http://tenders.gov.in/
Central Public Procurement Portal  http://eprocure.gov.in/cppp/
Defense Procurement Procedures 2016 Capital Procurement Manual: http://www.mod.nic.in/writereaddata/dPP-2016.pdf
Media and Think Tanks Institute for Defense Studies and Analyses  http://www.idsa.in/
Vivekananda International Foundation  http://www.vifindia.org/
Defense ProAc Biz News  http://www.defproac.com/
Defense Now  http://www.defensenow.com/

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.



India Aerospace and Defense Trade Development and Promotion