India Defense Market - Growth, Trends, And Forecasts (2020 - 2025)

The Indian defense market is anticipated to register a CAGR of over 4% during the forecast period.

- The geopolitical conflicts of India with its neighboring nations and the threat due to terrorism have forced the country to further reinforce its perimeter security and naval and airborne capabilities.
- The country has been constantly increasing its defense expenditure over the years, and the budget for 2019, valued at USD 44.6 billion, is its largest ever. The increasing defense budget is expected to drive market growth during the forecast period.
- India is striving for self-sufficiency across various sectors, including defense, by promoting the ÔMake in IndiaÕ initiative through focused, sustained, and evolved indigenization programs. This may provide new growth opportunities for players in the market.

Key Market Trends

Army Segment Held the Largest Revenue Share in 2019

As of 2019, the army segment held the highest market share out of all the segments. Modernization and capability development of the Indian Army is taking place at a rapid pace. To modernize the army, in 2017, the Indian government announced plans for the replacement of INSAS rifles with rifles capable of firing 7.62_51 mm NATO cartridges. Following this, to facilitate the replacement of old INSAS rifles, in February 2019, India signed a contract with a US firm for 72,400 assault rifles at a cost of around USD 100 million, and the first batch of 10,000 rifles was delivered in December 2019. The planned procurement/upgrades of a number of air defense guns and equipment are also expected to further enhance the capability of ground-based air defense. India is also in talks with the United States to procure National Advanced Surface-to-Air Missile System-II (NASAMS-II), an advanced air defense system, at USD 1 billion. Also, in October 2018, IndiaÕs Ministry of Defense (MoD) approved the procurement of 1,000 new engines for the Indian ArmyÕs T-72M1 Ajeya main battle tanks (MBT). In November 2019, the Ministry of Defense signed a contract worth USD 2.8 billion with Ordnance Factory Board to build 464 additional T-90s main battle tanks for the Indian Army. Such developments, along with several other plans to modernize the country's armed forces, may help the growth of the segment in the years to come.

'Make in India' Initiative Promoting Indigenous Manufacturing Capabilities in India

Many initiatives are being taken by the Indian Department of Defense to promote ÔMake in IndiaÕ in the defense manufacturing sector. The Department of Defense Production (DDP) has established wide-ranging production facilities for the production of various defense equipment through Defense Public Sector Undertakings (DPSUs) and Ordnance Factories. The products manufactured include heavy vehicles, arms and ammunition, tanks, armored vehicles, helicopters, fighter aircraft, warships, submarines, missiles, electronic equipment, earth moving equipment, special alloys, and special purpose steels. The IAF is working toward obtaining self-sufficiency by promoting ÔMake in IndiaÕ through focused, sustained, and evolved indigenization programs. It is currently focusing on reducing the dependency on the import of defense equipment. It inducted light combat aircraft, Akash Missile, and advanced light helicopters (ALH) in the recent past. It also plans to induct more capable and potent LCA Mk-IA in the future. It is also actively supporting DoD of LCH, RPAs, medium power radars, low-level tracking radars, and other systems and closely coordinating with DRDO for the development of various types of state-of-the-art weapons. The manufacturing of Ka-226 T helicopters, close-in weapon systems, and single-engine fighter aircraft under the ÔStrategic PartnerÕ model is also in line with the ÔMake in IndiaÕ initiative. India is also working on the HAL Advanced Medium Combat Aircraft (AMCA) program to develop a fifth-generation fighter aircraft. The Aeronautical Development Agency (ADA) is responsible for designing the plane, and Hindustan Aeronautics Limited (HAL) is responsible for the assembly. The AMCA will be unveiled in 2024, and the first flight is expected between 2025 and 2026. The production of the aircraft is expected to begin in 2029. The Shipyard has also made considerable progress in the implementation of the ÔMake in IndiaÕ Program. The indigenization of steel plates, gearboxes, steering gear system, fin stabilizer system, heligrid, doors (water and weather tight), and Gemini boats has increased the indigenous content to 70% in ongoing five CG OPV projects, as compared to 62% indigenous content in the recently completed Coast Guard Offshore Patrol Vessel (CG OPV) project.

In addition, under the ÔMake in IndiaÕ initiative, the Indian government, in February 2018, announced projects, like the Uttar Pradesh Defense Corridor (UPDC). The UPDC is estimated to attract investments worth INR 200 billion. Defense PSUs, like Ordnance Factory Board, announced investments worth INR 37 billion in the UPDC. In DEFEXPO 2020, MoUs worth INR 50 billion were signed by 23 companies with the state government. To attract investors, the state government has offered major incentives, including reimbursement of 25% of land cost, transportation subsidy, and reimbursement of 75% of the cost of technology transfer to anchor units. Thus, various ongoing developments may lead to a growth in the indigenous development and manufacturing of various defense technologies in India in the near future.

Competitive Landscape

Hindustan Aeronautics Limited (HAL), Ordnance Factory Board (OFB), Rafael Advanced Defense Systems Ltd, Rostec, and Lockheed Martin Corporation are some of the major players in the Indian defense market. The Make in India initiative, launched by the Indian government, has propelled several partnerships between foreign and local manufacturers. Partnerships between companies, like Hinduja Group, Ashok Leyland, and Elbit Systems, for military vehicles, the Tata Motors tie-up with Bharat Forge and General Dynamics, the partnership between India and Russia for Frigates and AK-203 Assault Rifles, and Boeing's partnership with HAL and Mahindra for the production of F/A-18 Super Hornet fighters are some of the major partnerships in the recent past, which were a result of the Make in India initiative. India is also trying to develop its indigenous manufacturing capabilities and focusing on increasing the product range of the defense equipment that it can produce locally, thereby, reducing its dependency on the import of defense equipment. Also, several public firms are working on the development of new indigenous technologies. For instance, in February 2020, Research and Development Establishment (Engineers), DRDO, and BEML Ltd announced a long-term partnership through license agreement transfer of technology for the indigenous development of a new technology for the minefield marking equipment, Mk-II (MFME Mk-II), which may be used by the Indian army for the detection of mine areas. Such partnerships are expected to enhance the technology transfer between the firms during the forecast period.

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