Defence Manufacturing in India

India has been engaged in an undeclared war with Pakistan since long. Considering the military understanding between Pakistan & China, their military potential and the reality of facing the internal threat of terrorists, insurgents and Naxals, India has serious security concerns today, as well as in the future. We face threats from land, sea and air & cyber war.  India has the third largest armed force in the world with a defence budget varying from 2 to 2.5 % of GDP.  India’s Defence equipment needs are high & will remain so in the future as well. This need, coupled with the fact that our policy in the sector has been restrictive and the sad truth that our PSUs have failed to meet India’s military hardware needs has made India the largest importer of defence equipment. About 60-70% of the military hardware is imported.  With our policy of opening up the sector the corporate sector is keen to enter the lucrative Defence Sector in India because of the following reasons:-

• Big Money & Profits

  India spent $42 billion this year on defence equipment. The expenditure is expected to rise 10% annually. With anticipated economic growth the figures can be expected to rise. The sector has limited competition & hence the profit margins are higher than other sectors. This makes the sector even more attractive.

• Low Cost of Production

  India has a vast pool of cheap & competent labour. Liberal SEZ policies and present ‘Make in India’ initiative has created a favourable production environment. This advantage exists today & will continue for a long time.

• Less Competition

  Defence sector is relatively new and unexploited as far as corporate is concerned. Saturation in other sectors is a big motivator for the corporate.

• Demand

  As explained earlier the geopolitical situation & internal threats create a huge demand for defence equipment.

• Economic growth
  Anticipated economic growth is likely to favour an increase in expenditure on Defence equipment.

Advantages Defence Manufacturing in India

There are great benefits of indigenous production of defence equipment. Salient advantages are enumerated:

• Government will be able to obtain cheaper equipment.
• Great savings will accrue in forex.
• Indigenous production will create jobs & add to GDP.
• Higher Reliability. Indigenously produced equipment will be more reliable in critical times. Just imagine you are using foreign GPS & the equipment supplying country decides to tamper with the satellites!
• Export Potential. With China’s labour force almost reaching a saturation point, India has great potential for becoming the next big manufacturing hub. USA made defence equipment being expensive, India has a great future as emerging as a defence equipment exporting hub, with large potential markets in South Asia, South East Asia, the Middle East & Africa.
• Energize our PSUs. Lack of competition has rendered our Defence PSUs inefficient. Private competition will enhance their efficiency.

Conclusion

Interest shown by the corporate in the Defence Sector is very sensible & bodes well for India’s future!