By Ajai Shukla
Business Standard, 26th Sept 23
According to a study by the Investment Information and Credit Rating Agency (ICRA), Indian private defence firms will supply the military equipment worth Rs 60,000 crore during the fiscal years 2024-2025 (FY 24-25).
The ICRA study predicts that business opportunities worth Rs 2.75 lakh crore are expected to open up for Indian defence entities in the next two years. Of these, 22 per cent (Rs 60,000 crore) would be obtained from private sector entities.
“This is in the backdrop of the sustained increase in annual budgetary allocations, coupled with the government’s focus on reducing import dependence; and the ambitious target of Rs 1.75 lakh crore in annual defence production by FY 2025,” said an ICRA release on Monday.
“The value of defence production has crossed the figure of Rs one lakh crore for the first time ever during financial year 2022-23,” stated the defence ministry (MoD) in Parliament on July 21, 2023.
“ICRA expects the share of private entities in the total production to gradually improve to 22 per cent and their production to grow at a Compound Annual Growth Rate (CAGR) of 20 per cent in the next three years to reach Rs 34,000 crore by FY 2026”, stated the ICRA release.
The release said that Indian defence production is expected to grow at a CAGR of 13.5 per cent in the next three years and reach Rs. 1.6 lakh crore by FY 2026.
The government listed out in Parliament on September 14, 2020 the numerous measures it had taken in the past few years to enhance private sector participation. These included a new category of capital procurement -- ‘Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)}’ – that was introduced in the Defence Procurement Procedure (DPP)-2016 to promote indigenous design and development of defence equipment. It has been accorded top most priority for procurement of capital equipment.
In addition, an innovation ecosystem for defence, titled Innovations for Defence Excellence (iDEX), was launched in April 2018. iDEX is aimed at creation of an ecosystem to foster innovation and technology development in defence and aerospace by engaging industries including MSMEs, start-ups, individual innovators, R&D institutes and academia.
In Feb 2018, the MoD established two defence industrial corridors to serve as engines of economic development and growth of defence industrial base in the country. They span across Chennai, Hosur, Coimbatore, Salem and Tiruchirappalli in Tamil Nadu and across Aligarh, Agra, Jhansi, Kanpur, Chitrakoot and Lucknow in Uttar Pradesh (UP).
“ICRA estimates Indian defence production to grow at an accelerated CAGR of 13.5% in the next three years and reach around Rs. 1.6 lakh crore by FY2026, narrowly trailing the Government’s ambitious goal of Rs. 1.75 lakh crore by 2025,” said ICRA’s Ashish Modani.
Modani added: “The policy initiatives have reduced procurement from foreign vendors to 32 per cent in FY 2023; Revised Estimates from 61 per cent in FY 2008; and have helped in enhancing India’s exports, which grew by more than 10 times and at a healthy CAGR of 48 per cent to Rs 15,920 crore in FY 2022-23, from a low Rs 1,521 crore in FY 2016-17.”
Details of capital procurement through indigenous and foreign sources for the period 2014-15 to 2018-19 are as per Graphic 1 (below).
Capital procurement (in Rs crore) from Indian and foreign vendors
Year | Total Procurement | Procurement from Indian Vendors | Percentage of total procurement | Procurement from Foreign Vendors | Percentage of total procurement |
2014-15 | 65,590 | 39,879 | 60% | 25,981 | 40% |
2015-16 | 62,342 | 39,150 | 63% | 23,192 | 37% |
2016-17 | 69,150 | 41,872 | 60% | 27,278 | 40% |
2017-18 | 72,732 | 43,697 | 60% | 29,035 | 40% |
2018-19 | 78,920 | 38,964 | 50% | 39,957 | 50% |
(Source: Figures from Press Information Bureau on February 5, 2020)
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