The India Opportunity
India became the 5th largest defence spender in the world in 2017 with a spending of $52.5 billion according to the 'Military Balance 2018' report by the International Institute for Strategic Studies (IISS). According to the Stockholm International Peace Research Institute, India has the 3rd largest armed forces in the world and has been the largest importer of military hardware in the world for the last five years. The country spends approximately 40% of its total defence budget on capital acquisitions and 60% of its defence requirements are met through imports.

As per IISS's analysis of the new Indian Joint Armed Forces Doctrine issued last year, the "emerging triad" of space, cyber and special-operations capabilities complementing conventional land, sea and air capabilities will see India continue to modernise its strategic forces, particularly its delivery systems.
About Offset Policy

With such horizons and scope, and a minimum 30% offsets obligation for winning big-ticket contracts for foreign suppliers, such obligations will play an imperative role in propelling India’s defence manufacturing industry in years to come.

The latest offsets policy guidelines introduced by the defence ministry in the beginning of 2018, provide even more flexibility and avenues to foreign OEMs to fulfil their offset obligations in India.

Some of the salient features of the latest revisions are:

  • Direct purchase of/executing export orders for, eligible products manufactured by/services provided by Indian enterprises have been included in the ambit
  • Foreign direct investment in joint ventures with Indian enterprises can be used for executing offset obligations
  • Investment in ‘kind’ in terms of ToT to Indian enterprises for the manufacture of eligible products, has now been included. The ToT should be provided without licence fee and there should be no restriction on domestic production, sale or export.
Focus on Indigenisation - India as a defence manufacturing hub

Indian Government is focussed on indigenous manufacturing of critical defence equipment and technologies within India as it aims to reduce its defence budget by 50 percent within a decade through indigenisation. This need has resulted in the introduction of ‘Make in India’ program, various reforms in the procurement policy, as well as amendments in the offsets policy to focus on and promote indigenous manufacturing and transfer of technology and skills.

The ministry of defence has set an objective to achieve US $5 Billion of defence exports by 2025.
A spate of initiatives and reforms have been introduced and initiated in India to make India a new destination for defence manufacturing and exports.

Local Manufacturing in India - Policy highlights
  • Major purchases in defence are being categorized as Buy IDDM (Indigenously Designed Developed & Manufactured) & Buy-Make Indian categories. This will entail the forming of new partnerships of Indian companies with foreign OEM’s.
  • Announcement of 2 defence industrial corridors in Northern and Southern part of India, One in Tamil Nadu and another in Uttar Pradesh respectively
  • Land and infrastructure is being subsidised by the government for defence manufacturing
  • Incentives & rebate on taxes have been announced by the government for such projects
  • The cap on Foreign Direct Investments in the defence sector has been raised to 49% and even more in special cases
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Defence exports from India - Policy highlights
  • India became a member of the Wassenaar Arrangement on export controls for conventional arms and dual-use goods.
  • The new standard operating procedure for export authorisation has reduced the time taken to process the applications considerably. In some cases it is as low as 1 week.
  • Online application filing for defence export authorization introduced by MoD.
  • India is actively pursuing strategic arrangements with foreign countries to promote this sector.