Looking at growth for the aerospace industry in India
The government is keen that aerospace & defence manufacturing thrives in India. Moves are slow, but steady
India has caught the attention of major aerospace defence manufacturers with its low production cost and government’s strong focus on building manufacturing sector under Make in India initiative. The Government of India (GoI) has been steadily creating an enabling ecosystem of policies and regulations to give the much-needed fillip to the Indian Defence Industrial Base (DIB). Over the last few years this has led to significant interest in this sector from domestic and foreign companies alike – which is primarily driven by defence equipment demand in India.
Mirroring the complex industry structure, the procurement process too is mired with intricacies, which often leads to the sellers (and investors, in effect) facing significant uncertainty stemming from bureaucratic red tape, budgetary issues and other similar concerns. Despite the uncertainties in the order booking timelines, the industries need to infuse large capital to build capability and capacity, well in advance. In addition to this, the high-technology industry calls for sustained funding requirements to manage technology upgrades and deal with obsolescence regularly.
Apart from such commercial issues, one needs to be equally cognisant of legal challenges such as information security, intellectual property protection, regulatory and transactional due diligence, etc. However, despite all the challenges, defence & aerospace remains a critical sector for India, often referred to as the ‘sunrise’ sector, given that India is aiming to shift from being the largest importing nation to being a self-reliant and exporting nation.
The global pie
The Indian manufacturing sector is internationally competitive with international quality standards, efficiency and manufacturing facilities. India is fast developing into a manufacturing hub for world corporations wanting to leverage the sector’s proven skills in product design, reconfiguration and customisation with creativity, assured quality and value addition.
The civil aviation sector in India is growing rapidly. It has recorded annual growth of over 41% in passenger traffic during in the last two years. In fact, it has contributed significantly to the growth of international civil aviation sector. The rapid growth of civil aviation has put extreme pressure on the existing civil aviation infrastructure. As a result, the thrust is now on modernisation of airports, communications, navigation and surveillance systems for air traffic management, radars and facilities for Maintenance Repair and Overhaul of aircraft and sub systems.
Several global defence giants, including Europe’s Airbus, America’s Lockheed Martin, Germany’s ThyssenKrupp Marine Systems and France’s Naval Group have made offers to India. Ashish Saraf, country head of Airbus helicopter division in India, says, “Airbus is planning to assemble its naval utility helicopters, including the Panther, for both domestic and export markets (including India). These helicopters are being used by the navies of 18 countries, including the US Coast Guard.”
However, these companies are yet to seal the deal. Some Indian private players, such as Adani Defence and Aerospace, Tata Advanced Systems, Bharat Forge and Mahindra and Mahindra, have tied up with foreign defence manufacturing firms, but these deals are yet to be finalised.
However, large aerospace companies are leaving no stone unturned to catapult Indian start-ups. Last month, Boeing launched a programme for Indian university students, faculty and early stage start-ups to help innovators convert their ideas into viable business offerings that have the potential to shape the future of aerospace and defence. "Boeing is committed to nurturing innovation and skill development in India. We believe that a close partnership with India's academia and growing entrepreneurial ecosystem has the potential to reimagine the future of aerospace for the world," said Salil Gupte, president, Boeing India. "With Boeing University Innovation Leadership Development (BUILD) programme, we are creating a platform for students and entrepreneurs to not only benefit from our vast experience and partner networks, but also develop their ideas into path-breaking innovations," he added.
Boeing has partnered with seven incubators: IIT Delhi, IIT Gandhinagar, IIT Bombay, IIT Madras, IISc Bangalore, T-Hub Hyderabad, and KIIT Bhubaneshwar to select finalists for the BUILD boot camps.
High in the air
States too are eyeing investments in aerospace and defence. The Tamil Nadu government is eyeing investments worth $15 billion in the aerospace and defence sectors in the next 15 years to make the state a preferred hub for the two industries. The objective is to make Tamil Nadu the preferred hub for aerospace and defence industries in India in the areas of engineering, design, manufacturing and allied activities. In January, Nirmala Sitharaman had inaugurated the Tamil Nadu Defence Industrial Corridor in Tiruchirappalli, about 300km from Chennai. Investments worth over Rs 3,038 crore in this defence corridor were announced with majority of them from public sector undertakings.
Besides boosting the aerospace and defence industries, the policy would also harness Tamil Nadu's strengths in the automotive manufacturing sector. The government would also look at establishing Centre of Excellence, R&D and skill development institutions in the state by attracting global OEMs and major Indian companies. For developing the aerospace and defence industry ecosystem, the government plans to undertake a "cluster development" approach in building the aerospace and defence manufacturing by creating the required infrastructure.
The government would also develop a single window clearance facility through the Tamil Nadu Industrial Guidance Bureau that would be available for entire aerospace and defence-related manufacturing and infrastructure projects "irrespective of the size" of the investment.
Similarly, the Gujarat government has chalked out a blueprint to develop a defence corridor in the state. The corridor will be a dedicated area where national and international defence sector companies will be invited to invest. Around 22 companies have got defence manufacturing licenses for Gujarat from the government of India, but most of them are awaiting long-term orders from the central government to start their operations in the state.
Meeting new demands
Indian defence sector sees good opportunities for exports to the South East Asian and the Gulf countries where slower economic growths have put budgetary pressure on acquiring viable, cost-effective and reliable solutions. India will export its first batch of missiles this year to the South East Asian and the Gulf countries after receiving "increasing interests" from them.
In terms of production facilities, Boeing has offered to set up a new production facility in India for the production of its F/A-18 Super Hornet fighters if the company gets contracts for large number of fighters for both the Indian Air Force as well as the Indian Navy. Also, since the Indo-US defence and security ties have been on an upswing, the company does not foresee any issues related to transfer of technology (ToT).
An interesting thing that has happened within the defence ecosystem has been the active participation of start-ups since last year. In just the last one year about 500 start-ups have begun actively working in the defence and aerospace area. The defence ministry has six incubator partners to what its calls the IDEX (Innovation in Defence for Excellence) programme. The IDEX challenges have been defence start-up challenges and this has created a very active start-up community for defence and aerospace.
US-based Carr Lane Manufacturing and Chennai-based Rialto Enterprises, part of the Rs 600 crore Rayala Group, have entered into a joint venture to produce specialised aerospace components, initially to export products to Carr Lane's international market. The new 70:30 JV will start commercial production within three months and in the next 24 months, it hope to achieve sizeable turnover. There are plans to invest around Rs 80-100 crore in the first three to four years.
Ranjit Pratap, MD, Rialto Enterprises, said “The basic infrastructure for the new facility is already available in the company's factory to produce the high quality components that are used by the aerospace industry. Rialto already manufactures press components for auto-component firm Wabco.”
Indian software companies are already at the global level of competencies, so the capability exists in India today. It is now a question of being able to leverage it and integrate it. The defence and aerospace is roughly $500 billion plus industry. The country has $10 billion to $12 billion of production today.
India is now turning into one of the fastest growing defence and aerospace hubs. It has traditionally followed the transfer of technology (ToT) model in the defence production ecosystem. It now recognises the fact that TOTs can only take us thus far. India needs to have more control on technology and so today there are several defence platforms that are totally indigenous.