According to a report by Federation of Indian Chambers of Commerce and Industry and financial services firm Centrum Capital Ltd., India’s defense spending is expected to hit $620 billion between fiscal years 2014 and 2022. Driven by both domestic and external demand, the annual opportunity for Indian companies, both public and private sector, is expected to reach $41 billion by fiscal year 2022 .
The report, released this month, noted that the government has consistently underspent vis-à-vis budgets approved, mainly due to procedural delays. The majority of monies spent was for maintenance and paying salaries of the armed forces rather than for buying new equipment. “This anomaly is being taken very seriously by the government, which is planning to shift the current operating expenditure : capital expenditure ratio of 60:40 to 50:50 and eventually take it to 40:60 in the long term. Policy level changes in the past 2-3 years are considered positive by industry players,” the report noted.
The report mentioned key positive factors for the projected growth:
- large and relatively low cost engineering talent pool
- comfort of Western nations with India from a geo-political perspective
- IT sector growth benefits with the nature of warfare becoming more software intensive
- renewed focus from the government on streamlining policies and cultivating a conducive investment climate
- government incentivizing research and development
- promotion of defense and aerospace exports through an export promotion body
“However, India will have to significantly improve on some other factors (technology, lack of a defense manufacturing ecosystem, etc.),” the report added.
Sandeep Upadhyay, senior vice-president and head infrastructure solutions group at Centrum Capital, said he believes the Indian defense sector is at an inflection point and poised to grow at a sustainable high rate in the next decade.
