Deloitte releases global defence industry in India report

The report details how India is fast becoming one of the largest military spenders in the world and discusses how foreign aerospace companies now recognise India as both a critical market to operate in and a potential manufacturing partner.

Pauline Biddle, UK head of aerospace and defence at Deloitte, commented: “The rapid rate at which India's investment in their defence offering is rising creates significant opportunities for foreign A&D firms to increase their business there. India's domestic defence sector is likely to require specialist input into both platform and systems development. This demand can be met by foreign firms, including those from the UK given our aerospace heritage and market leading R&D programmes and innovation.

“However while the rewards for foreign companies launching operations into the Indian market are significant, the challenges should not be under estimated. The 26% limit for foreign direct investment introduced by the Indian government in 2001 remains, and there are also a range of tax benefits and offset obligations that can provide for long-term foreign participation in the Indian defence industry.

“There are many opportunities for foreign companies to partner with the Indian defence industry, some which could be facilitated by the ‘Buy and Make' Indian opportunity. UK companies, including BAE Systems and Rolls-Royce have already started their expansion into the Indian aerospace and defence market. Similarly, other UK companies in the automotive sector who have been in India for a long time have good prospects to tie up with Indian majors in the sector. I predict that we will see a dramatic rise in the number of Indian joint ventures with foreign firms over the next five to ten years.”

Nidhi Goyal, director in Deloitte's Indian aerospace and defence team, commented: “India is recognised as the next international manufacturing destination given its competitive strengths including wider supplier base, comparative low cost of labour, persistent focus on infrastructure development and huge pool of skilled workforce.”

Responding to India's notional target for 70% of new acquisitions in the future to be sourced from indigenous production, Goyal continued: “In order to meet the target 70% indigenisation, local industry should achieve an average growth rate of 30% per year over the course of the next five years. At present the current offset contracts are still not sufficient for Indian industry growth and hopefully the target for offset contracts at US$10bn by 2011 will give the necessary boost that is required by the industry.”

www.deloitte.co.uk