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Why am I betting on India’s Re. One Lakh Crore Defence Business?

Posted in Defence Production, Defense, and Weapon Systems [India]

Last updated on July 3, 2021

And, why you should too.

There is a Re. One Lakh Crore business waiting to be tapped and get your share in it.

Who will be interested in this business? Everyone, right from raw material suppliers, NX programmers, component manufacturers, electronic companies, system integrators, reverse engineering professionals, electronic companies, sensor makers, startups, AI, jet engine manufacturers, machine tool companies, qc specialists, consultants, defence documentation experts, sub contractors, and several allied industries.

Please note that, I have never advised someone, something which I think is not good for me.

Given this awesome introduction of myself ;-), let us now see, step by step, the justification for my advice why businesses should invest in India’s Defence Business.

So, what is the opportunity in Rupee terms in Defence Business of India?

Present

It is estimated that the Defence Industry is Re. 80,000 Crores. Of this, Re. 17,000 Crores is Private Sector share.

The Govt. is making all efforts to increase the share of the Private Sector.

Let us first understand the main key points, which are essential to get a background of Defence Industry.

Background

Procurement and Production

The Defence Industry from the perspective of policy and procedures by the Ministry of Defence can be broadly divided into Procurement and Production.

Import Bill

India is one of the largest importers of defence weapon systems in the world. The reasons are simple:

  • India does not have the technology to make the advanced weapon systems
  • India has two of the most aggressive and quarrel mongering neighbors, so it has to keep matching up to their capabilities

The saving grace has been India’s space technology and advancements.

It is also relevant to note that exports are negligible as compared to imports.

Budget Conscious Government

The present day Govt. is very very conscious of reducing imports as this has major ripple effect. Firstly, it frees the Govt. to be flexible in domestic investments and consequently boost growth. The other major imports being the fuel bill, the Govt. is keeping the fuel prices at a high level and indirectly nudging commuters and travelers use cheaper modes.

Growing Threats

Threats to India’s security have been severe and this necessitates a vigilant and well equipped defence forces.

While India has a upper hand in an all out war with Pakistan and can hold its own with China, experts say it is found wanting on a short duration high intensity war.

So, a robust defence force is a must for the country’s security. Moreover, exports will further bolster the Domestic Defence Industry.

Influx of Businesses

Major companies such Amazon, Samsung, Hyundai, Honda, Toyota are in India. Providing security to these companies and consistent policies is necessary, as if they leave due to instability, employment is lost.

Government Steps

Defence is one industry which is directly dependent on Govts. involvement which includes purchases, consumption, and export promotion. There are several indicators which point to the fact that this Govt. is going to invest heavily in domestic defence industry. The indicators and a brief explanation is given below.

Participate seriously in World “Ease of Doing Business” Rankings

Since the day this Govt. has taken over, it has tried every measure to increase its Ease of Doing Business ranking. As of today, India’s ranking stands at 63.

Further increase in rankings, requires major improvements as the top of 50 rankings the incremental point difference will be small.

Simply put, India will be competing with the best in the world and requires major improvements to score incremental rank improvements in EODB rank.

A clear indicator that Govt. is keen to compete on the world stage.

Import Restrictions

True to its word, as mentioned in the Defence Production and Export Policy, the Govt. of India, Ministry of defence has released two lists of weapon systems which will be import barred from specific dates which are decided depending upon on the system.

Here are the two lists:

The first list of weapon systems restricted for imports

The second list

This is a great assurance for the Private sector, as it can plan to start investing with the confidence that Govt. has itself declared that such weapon systems will not be imported.

Appreciation of Technology Issues

The Ministry of Defence, GOI, has consistently mentioned that the life cycle of innovation and production is complex and hence, it is creating a Technology Assessment Cell, which will monitor such complexities.

Support to Startups

The Govt. of India has attempted to boost the startup culture in the country. There are many instances to show, that what AICTE, and IITs and Universities have to be doing is being done by the Central Govt.

Various measures such as “Start up India, Stand up India“, “iDex Defence” have been initiated and funds have been dispersed to deserving startups directly.

OFB Corporatization

In the Month of June 2021, the Govt. of India announced steps to convert all OFB board into a PSU. This marks the beginning of large outsourcing of component and sub assembly manufacturing to the 8000 MSME companies.

The Govt. is moving on these lines:- Announcement on OFB Corporatization

Detailed Defence Procurement Procedure

A detailed Defence Acquisition Procedure has been published, 600 plus pages, covering various aspects of Acquisition such as acquisition categories, acquisition planning, what is indigenous content, procurement under ‘buy’, procurement under “make”, procedure for procurement developed by “DRDO, DPSUs, OFB”, fast track documents, standard contract document, leasing, other capital procurement, post contract management and procedure for ship building.

System Integrators

Of the many steps the Govt. of India is taking, this one and the OFB corporatization are two steps which will benefit 8000 MSME companies the most.

The Govt. is mandating that the DPSUs become system integrators and exit out of manufacturing. Big challenge for the DPSUs. They have to actively collaborate with Private Sector.

Importantly, as System Integrators they have to lead their sub contractors and partners to create superior products.

The MoD, GOI, released “Defence Production & Export Promotion Policy” – a overarching document covering all aspects of the Governments plan and steps which are to be followed to sell Weapon Systems to the Govt.

This policy is a simple well written 19 page document. [as all good policy documents]

My personal opinion is, if an entity lists a simple policy document, it means a good and encouraging indication.

In my next post, I will for your benefit analyze DPEPP document and also highlight operative statements, research and discuss all the actions taken on each of the operative parts.

So, what does the above tell us?

The Govt. is very very serious on this. It is striving to reform both the procurement and production side of the Defence Industry.

Of all the several measures, two steps stand out.

One, Import Restrictions.

This is a message to all stakeholders that no more importing and profiting weapon systems.

Indian businesses who are denied an opportunity to manufacture and enjoy the benefits, will jump at this opportunity.

The second measure is the publication of Defence Acquisition Procedure, which clearly tells the stakeholders the procedure to procure/acquire. It tells the officials the procedure and the steps to adhere to, and businessmen what to expect when selling weapon systems.

Ground Realities

It is not enough to announce a policy. The ground realities are equally, if not more important. There are several ground realities which hinder highly tech intensive businesses such as Defence Businesses.

I have listed some of them below. Private sector can steer clear of these or when required can build their in house competencies to overcome these hurdles.

FactorExplanation and ChallengesPossible Solutions
Technology Gap / Knowledge Gap / Skill GapThe fact that India’s total defence import bill stands at billions of dollars is ample evidence that there is a huge technology gap.The only way for this is have 1000 plus educated M Tech qualified engineers who will be backbone of the technology adoption and innovation for specific weapon systems. Technology adoption has to happen with reverse engineering, model building, maintenance repair and overhaul. Innovation will happen when this base is created. The best way is to create a pool of 10 faculty of engineering colleges for each one of 200 weapon systems.
Parrallely, the Govt has to create a program for students of engineering colleges to work on projects which are essentially re engineering of platforms and weapon systems which are in use by forces.
This will create a strong bench force to take up projects.
The focus areas are listed below and the institution to connect with is DRDO.
FundsAdopting to new technologies requires investment in capital equipment, new skill sets, and infrastructure.While bank funds come with 12-15 % interest, venture funds do not see defence startups and MSMEs as big revenue generators as they would like to see, for possible exits.
This puts a damper on aspirations of entrepreneurs to leverage their skills in the defence sector.
However, if startups factor in exports as a major revenue generator then attracting funds would be easier.
For this the Govt. has roped in the embassies and defence attaches.
Bureaucratic Procedures and BottlenecksAll the above is about how the Central Govt. is operating.
But, a major factor in this journey is the state Govt.
Most Private Sector companies would like to avoid the state govt. as experience shows it delays the projects and add to costs.
The only way is to create competition among the states and link measurable performance to awarding of projects.
A brief understanding of the major factors and suggestions.

I have come to the end of this quick post, urging all to look at Defence manufacturing as a potential revenue generator for your company.

My Competencies

The above shows there is a clear demand being created and a ready market to be explored.

Let me quickly outline how I can support your institution.

Execution and Solution Finder

I am an expert executor of tasks with techno-business challenges, and minimal resources. I have achieved 10,000 software sets sale, using a combination on the field and digital techniques, and it is a unique achievement, as there is no one who has created such products and sold in such large numbers all over the world. I have been a key contributor in the software code set creation.

I have played a key role in analyzing requirements and selection of Capital Equipment for manufacturing companies.

I have come out with a comprehensive K3 Plan for Engineering Colleges which across the board are facing huge challenges. This plan will create a strong base for colleges to become knowledge centers and withstand the multiple challenges which are confronting the institutions.

Expertise in Defence Procurement Procedure

With a thorough understanding of the Defence Acquisition Procedure, released in Oct. 2020, covering all aspects of Defence Procurement and Manufacturing for 200 plus weapon systems, I support companies in adhering to the procedure for seamless business with the MoD.

I can work with you to establish connects with 500 + Licensed Defence Manufacturers in the role of facilitator for you to leverage on these connects.

Experienced in Manufacturing Procedures

I am exposed to manufacturing processes, roles of various machines, process flow management, and ERP software implementation and daily working. Read my master plan for making a Component Manufacturing Unit a Profitable Unit.

Additionally, I have an introductory knowledge of NX programming and how the software works to create machine readable programs.

I have also given out brief outline of the problems being faced by Machine Tool vendors in India and how they can make a big impact in the article titled achieving sale growth of your machine tools.

What Next?

If you are interested in this billion dollar business do note that the Govt. has listed the following focus areas:

  • Gas Turbine Engines
  • Hypersonic Missiles
  • Ballistic and Cruise Missiles
  • Armored Vehicles
  • Submarines
  • Fifth Generation Fighters
  • Transport Aircraft
  • Secure Communication Devices
  • Cyber Security Infrastructure
  • Surveillance Systems
  • AI Robotics
  • Airborne Sensors
  • Strategic Materials

Whom to contact? DRDO. DRDO is the nodal agency which is assigned the task of developing the above systems.

If you are from a private sector company, you need to also contact the Department of Production, MoD GOI for participating in the production of defence weapon systems.

To get an idea of the weapon systems which are being exported you can download and read this Export Publication

One Comment

  1. Swetadri
    Swetadri

    Very well written

    July 2, 2021
    |Reply

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