Presented By: Jay Prajapati Deepak Upadhyay Dhruval Patel Chirag Thakkar

INDUSTRY ANALYSIS OF

INDIAN DEFENCE SECTOR

Guided by:Dr Maurvi VasavadaCMS-Ahmedabad.

• Introduction Of Indian Defence• Factors• Strategic Analysis• Budget Analysis• Conclusion• Recommendations & Future Work

Content

HISTORY

• During the early modern period France,United Kingdom,Netherlands and some states in Germany became self-sufficient in arms production.

• The modern arms industry emerged in the second half of the nineteenth century as a product of the creation and expansion of the first large military industrial companies

INTRODUCTION

• The arms industry, also known as the defense industry or the arms trade, is a global industry responsible for the manufacturing and sales of weapons and military technology.

• It consists of a commercial industry involved in the research and development, engineering, production, and servicing of military material, equipment, and facilities.

• Arms-producing companies, also referred to as arms dealers, defense contractors, or as the military industry, produce arms mainly for the armed forces of states.

Exporters1 United States

2 Russia

3 China

4 United Kingdom

5 France

Importers1 India

2 Saudi Arabia

3 China

4 Indonesia

5 Vietnam

World’s largest arms exporters and importers

MINISTRY

OF

DEFENC

E

Department of Defence

Department of Defence Production

Department of Defence R&D

Department of Ex. Serviceman Welfare

Airforce,Navy,Army

Ordinance Factory Board,DPSU

DRDO

Defence Industry

The production of defence equipment was, until relatively recently entirely a government function. The Industrial Policy Resolution, 1948, restricted the entry of the private sector into this industry.

In May 2001, the sector was opened for private sector participation, with 100 percent private sector ownership permissible and FDI of up to 26 percent.

Foreign companies account for the majority of procurement from the private sector in India, with approximately 70 percent of Indian defence procurement coming from overseas sources.

Of the 30 percent of orders placed in India, only an estimated percent is attributed directly to the private sector.

FACTORS

Establishment of a new procurement regime

Push to domestic industry

Simplification of offset regime

Increasing involvement of states

Maturity in Indian industry

Production

Over the years, the Department has established wide ranging production facilities for various defence equipments through the Ordnance Factories and Defence Public Sector Undertakings .

The products manufactured include arms and ammunition, tanks, armoured vehicles, heavy vehicles, fighter aircraft and helicopters, warships, submarines, missiles, ammunition, electronic equipment, earth moving equipment, special alloys and special purpose steels.

Major Companies

• HINDUSTAN AERONAUTICS LIMITED (HAL)• BHARAT ELECTRONICS LIMITED (BEL)• BHARAT DYNAMICS LTD. (BDL)• BEML Limited•MISHRA DHATU NIGAM LIMITED (MIDHANI)•MAZAGON DOCK SHIPBUILDERS LIMITED (MDL)• GOA SHIPYARD LTD. (GSL) • GARDEN REACH SHIPBUILDERS AND ENGINEERS LTD.

(GRSE)• HINDUSTAN SHIPYARD LTD. (HSL)• Private Sector Companies :  TATA ADVANCED

SYSTEMS LIMITED, MAHINDRA DEFENSE SYSTEMS

Major Products

Company’s Name Specialization

Bharat Dynamics Ammunition and Missile systems

Bharat Electronics Avionics

Bharat Earth Movers Transport

Defence Research and Development Organization

Research and Development

Garden Reach Shipbuilders & Engineers Naval ships

Goa Shipyard Shipbuilding

Hindustan Aeronautics Limited Aerospace manufacturer

Mazagon Dock Limited Shipbuilding

Mishra Dhatu Nigam Metallurgy

Ordnance Factories Board Defence Equipment and Support

STRATEGIC ANALYSIS PEST ANALYSIS

POLITICAL & POLICY

• Government support• Induction of GAAR (General Anti Avoidance Rule)• Political stability, regulatory effectiveness, rule of law and Sovereign

debt• Corruption • Regional issues overpowering important country level Economic

decisions• Defence Production policy & Defence Procurement Policy • Defence of the country is of highest priority

ECONOMICAL

•Major economic reforms done in last 20 years• One of the fastest growing economy in the world • Increase in defence budget on an yearly average of 8% • One of the highest saving fund • Defence Offset Policy • Recently DEFENCE sector opened for private players with

Investment up to 100% and FDI 100%• Largest importer of Arms• Founding member of WTO

SOCIAL & LEGAL

• Constant threat from terrorists•Many international disputes with neighbours• Second largest army of the world• Low cost labour • Pool of second largest English speakers • Large pool of skilled manpower required for Defence industry

is available • Better quipped legal system• Highest no. of scientist engineers

TECHNOLOGICAL

• Availability of foundations for developing a robust industrial Base in the defence sector for R&D, MROs (Maintaince Repair and Operations) ie. DRDO, HAL

• Indigenized development of Helicopters by (HAL) and Aircraft (LCA/TEJAS) is under progress

• Experience of producing robust Defence equipment at low cost

• Availability of talent suitable for Defence Industry

• Knowledge & Implementation of International Quality Standards required for DEFENCE Industry is available

SWOT ANALYSISSTRENGTH

• Government supports very much • Knowledge and implementation of international quality

standards required for Defence industry is available • Better equipped legal system • Adaptability to changed scenario

WEAKNESS

• Corruption • Difficulty in starting a business specially in DEFENCE sector • Low innovation • Very long product cycle time as many approvals & checks to

be done• Political instability, regulatory in effectiveness, rule of low and

sovereign debt• Lack of infrastructure and the increase in energy deficient

OPPORTUNITIES

• It is one of the fastest developing market and so the items can be manufactured as all required resources are available

• India is strategically located and developing market of middle east, Asian and Asia can be targeted

• Largest number of scientist and engineers

• Increase in overseas supplier‘s involvement in Indian defence Industry

THREATS

• Strategic barriers for critical techonologies and source codes

• Exchange change risk like Depreciation in dollar

• Tough competition from Brazil, China and Russia

• Reduction in overall budget

• Degradation of India‘s rating by International Agencies

PORTER’S FIVE FORCES

Rivalry among existing

competitors HIGH

Threat of new enterants

MEDIUM TO HIGH

Bargaining power of buyers HIGH

Threat of substitute

MEDIUM TO HIGH

Bargaining power of supplier

LOW TO HIGH

BUDGET ANALYSIS & DISCUSSION

Revenues and Capital

Year Revenue CapitalTotal Defence Expenditure

Share of Defence

Expenditure in GDP (%)

2010-1179,146

(7.0)60,306 (10.0)

1,39,452 (8.3)

2.12

2011-1284,686

(7.0)66,337 (10.0)

1,51,023 (8.3)

2.03

2012-1390,614

(7.0)72,971 (10.0)

1,63,585 (8.3)

1.94

2013-1496,957

(7.0)80,268 (10.0)

1,77,225 (8.3)

1.85

2014-151,03,744

(7.0)88,295 (10.0)

1,92,039 (8.4)

1.76

2010-11 2011-12 2012-13 2013-14 2014-150

20,000

40,000

60,000

80,000

100,000

120,000

RevenueCapital

2010-11 2011-12 2012-13 2013-14 2014-151.5

1.6

1.7

1.8

1.9

2

2.1

2.2

2.3

2.4

2.5

2.12

2.03

1.94

1.85

1.76

Share of Defence Expenditure in GDP (%)

•Defence Budget

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

50000 150000 250000

147000

164415.49

193407.29

203673

229000

246727

Budget(in cr.)

•Growth of Defence Budget

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-20160

2

4

6

8

10

12

14

16

18

20

3.98

11.59

17.63

5.31

12.4

7.74

Growth of Defence budget

•Rev and Cap of department-wise budget

  

2012-13 Actuals(Rev+ Cap)

2013-14  

2014-15 2015-16 

2016-17 

Army 91450.51 99464.21 119434.94 130658.33 1,39,700.43

Navy 29593.53 33393.21 32442.86 40528.88 39,424.88

Air Force 50509.13 57708.63 53896.54 56686.84 53,451.25

DGOF 267.86 1298.39 2332.89 3644.30 1,953.29

DGQA 695.67 766.02 815.58 850.16 975.37

R&D 9794.80 10868.89 13447.19 14358.49 13,593.78

2010-11• Due to rising social and political tensions in different parts of

the country, there is far greater need for inclusive growth. • Considering the security environment in and around India,

the government will have to provide more funds under the Capital budget required for modernization of forces. • Thus, Defence authorities will have to work out how to

function with a minimal increase in the Revenue budget. 2011-12• The growth in the defence budget has provided extra

resources, particularly for the modernization of the armed forces.

2012-13:• The increase in the latest defence budget was made possible

by the expansionary fiscal policy adopted by the government in general. Further, although the increase looks impressive at first glance, it is not however driven by the modernization needs as much as by manpower needs.• The surrender of funds under such critical heads and of such

magnitude not only reflects poorly upon budgetary management and the procurement system, but is also a cause of concern given the huge gap in national military capability and the rapid modernization in neighbouring countries.

• China which is pursuing an unprecedented level of military modernization with a double-digit annual increase in defence expenditure for two decades.

2013-14:• A mismatch of huge proportions is expected in the coming

years between the allocation to and expectation by the defence ministry. • One of the paths that the Ministry of Defence is now

expected to take is to rework its future expenditure based on the current reality. This would mean a bit of reprioritization of its main items of expenditure.

2014-16:

• The latest defence allocation comes in the wake of the Modi government’s all-out push for the ‘Make in India’ initiative, the ‘heart’ of which, as noted by the Prime Minister himself at the Aero India 2015, is the defence industry.• The modest increase would most likely enlarge the already

huge gap existing between the MoD’s resource requirement and the allocation made in successive budgets. • The stagnation of capital expenditure, which is crucial for

building new capability, would further delay the on-going modernization process.

• From both the short- and long-term perspectives, this is a major cause of concern for sectors like defence, which are completely dependent on the central government for their resource requirement.• The 2015-16 defence budget is also disappointing on account

of the lack of a defence-specific ‘Make in India’ initiative.

RECOMMENDATION AND FUTURE

WORK • As India is moving towards transformation from a regional

power to a global power, the Defense sector is increasingly occupying even bigger space in the country’s long term strategic planning. • India is gaining power it is increasing its purchasing power as

well with several high-end Defense deals either in the pipeline or being envisioned to strengthen India’s force structure.

• As an emerging economic superpower, India’s spending on Defense is on a rapid upward trajectory.• The main driver appears to be emerging rivalry with China –

especially as Beijing seeks to increase its presence in the Indian Ocean. • However, traditional rivalry with Pakistan as well as

increasing internal security issues are also factors.• indian

defense industry\Project\images\india-outline-map.jpg•With skilled intensive manufacturing capabilities and a world

class IT base, India has the right ingredients to become a key link in the global defence supply chain.

• The defence opportunity is a win-win situation for the country. •With stronger focus on IT, high tech engineering and research

and design capabilities, India can leverage its IT infrastructure and manufacturing potential to be one of the key global sourcing destinations for defence systems and equipment.

Make in IndiaRising up to the huge expectation generated since the launch of ‘Make in India’ initiative in September 2014, the Union Budget has made a number of provisions to incentivise Indian industry, particularly the manufacturing sector.Make in India - Defence.mp4

REASONS TO INVEST• India’s current requirements on defence are catered largely by

imports. • The opening of the defence sector for private sector

participation will help foreign original equipment manufacturers to enter into strategic partnerships with Indian companies and leverage the domestic markets as well as aim at global markets.

• The offset policy introduced in the capital purchase agreements with foreign defence players. It would also ensure that an eco-system of suppliers is built domestically.

• Favorable government policy which promotes self-reliance, indigenisation, technology upgradation and achieving economies of scale including development of capabilities for exports in the defence sector.

• The country’s extensive modernization plans with an increased focus on homeland security and India’s growing attractiveness as a defence sourcing hub.

Thank You