Introduction
In India, the aerospace industry is growing significantly with the rising activities from both the defence and civil aviation sector. With increasing demand for large aircraft from Indian carriers such as SpiceJet and Indigo, and focus on Powered by Hour Contracts (PBH), many of India’s aerospace services and manufacturing activities are expected to be carried out. Similarly, as India’s defence capital expenditure spending is continuously growing, there are also many opportunities in defence aerospace. This offers opportunities for start-ups as well as further expansion for existing players.
The Indian aerospace & defence (A&D) market is projected to reach ~US$ 70 billion by 2030, driven by the burgeoning demand for advanced infrastructure and government thrust.
Drivers
Rising passenger traffic
Domestic air travel demand continued an upward trend in October 2020, with a 33% increase (over September) to ~52 lakh passengers. In June 2020, the Ministry of Civil Aviation approved capacity increase to 45% from one-third, soon after domestic flights resumed from May 25, 2020. It further increased to 60% from September 2, 2020. With the festive season around, the government expects capacity to go up to 75%.
Further, under the Vande Bharat Mission, between May 7, 2020 and October 31, 2020, international passenger traffic (inbound and outbound) stood at ~10.96 lakh. The aerospace industry is expected to
Increasing military and defence expenditure
India’s defence budget for 2020-21 is Rs. 4,71,378 crore (US$ 67.4 billion), 9.37% higher than that in 2019-20. Of the Ministry of Defence total allocations, Rs. 323,053 crore (US$ 46.2 billion) has been provided under the Defence Services Estimates (DSE), which deals with expenses of the three-armed forces and the Defence Research and Development Organisation (DRDO).
Further, to support development of military procurement, in October 2020, the Modi government lifted expenditure restrictions on defence spending amid the ongoing stand-off with China. As a result, the Ministry of Defence, would be able to spend in line with its quarterly expenditure plan, which includes emergency procurement processes of over 100 contracts, each with a budget of Rs. 500 crore (US$ 67.10 million).
Strong A&D ecosystem
India ranked 19th among the world’s defence exporters in attracting foreign investments. India’s defence exports increased 700% in two years—from Rs. 1,521 crore (US$ 204.13 million) in 2016-17 to Rs. 10,745 crores (US$ 1.44 billion) in 2018-19.
In August, the Union Ministry of Defence formulated the Defence Production and Export Promotion Policy 2020 as an underlying guidance document to accelerate PM Modi’s commitment for ‘Atmanirbhar Bharat’ and provide a guided, streamlined and significant boost to the country’s defence production capabilities for self-reliance and exports. The policy aims to generate revenue worth Rs. 175,000 crore (US$ 23.49 billion), including exports of Rs. 35,000 crore (US$ 4.70 billion), in the aerospace & defence products and services space by 2025.
Opportunities
Strong industry support
As India is rapidly modernising its military sector, the aerospace and defence industry is expected to consume electronics worth US$ 70-72 billion over the next decade in agreement with two industry associations—the National Association of Software & Services Companies (NASSCOM) and the India Electronics and Semiconductor Association (IESA).
Rising initiatives by industry players
Industry players, innovators and researchers, backed up by the Indian government and space agencies, are focussing on creating new aerospace opportunities.
For example, in October 2020, Starburst Aerospace announced plans to expand presence in India and develop an innovation centre in Mumbai and conduct engagement activities in Delhi, Bangalore and Hyderabad through partners in the aerospace and defence community.
Cost-effective environment
Aerospace requires highly qualified workers and precision capabilities. India presents an ecosystem, which ensures quality and improves performance for the overall effectiveness of business operations.
In the third and latest edition of FDI’s Aerospace Cities of the Future 2020-21 rankings, Hyderabad was ranked number one by FDI Intellegence.com, a division of the Financial Times Group, under the category ‘Top 10 Aerospace Cities in Cost Effectiveness.’ The other Indian cities that also made to the top 10 list include New Delhi and Bengaluru.
Government initiatives
The government is taking several measures to boost domestic manufacturing and growth across industries.
- Aero India 2021
In line with this, in October 2020, the government announced the Aero India 2021 to position India among the top five countries globally in defence & aerospace industries with active participation from the public and private sectors. As of September 2020, ~36 companies from public and private sector undertakings such as Alpha Design Technologies Pvt Ltd., Bharat Electronics Ltd. and Hindustan Aeronautics Ltd. have already registered to participate in the five-day air show. The foreign participants in the show include Frances MBDA, Israel Aerospace Industries Ltd., US aerospace major Boeing, Russia’s Rosoboronexport JSC, etc.
To support its objective, the government is encouraging active participation from industry players.
For example, in the Defence Acquisition Procedure 2020, a new category of Buying ForeignManufacturing in India was incorporated to include provisions for encouraging FDI to establish manufacturing hubs. The new category involves manufacturing of equipment (Maintenance Repair and Overall) through subsidiary of a foreign corporation in India.
- Foreign Direct Investment
Various government reform initiatives indicate a step forward in achieving objectives such as increasing FDI to 74% via automatic routes in the defence sector.
As per data provided by 80 companies, FDI inflow of over Rs. 3,454 crore (US$ 463.55 million) has been registered in the defence and aerospace sector as of June 2020.
- Research and Development – Promoting start-ups under ‘Aatmanirbhar Mission’
In April 2018, an innovation platform called Innovations for Defence Excellence (iDEX) was launched. IDEX aims to build an ecosystem to encourage defence & aerospace innovation and technology initiatives.
It engages and supports industries such as start-ups, MSMEs, innovators and institutes with grants/funding to conduct R&D for future adoption of the Indian defence and aerospace needs.
‘Make in India’ initiatives
Defence and aerospace continues to be a strong pillar for India and key government systems such as Make in India to succeed. Government policies have centred on the implementation of advanced technologies in the defence sector, thus improving the potential of domestic manufacturing. The Defence Ministry has set a target of 70% self-reliance in weaponry by 2027, creating huge prospects for players in the industry.
The Indian government has implemented several policies to promote self-reliance in defence and aerospace manufacturing under the Aatmanirbhar Bharat Scheme.
E.g., 74% FDI in defence manufacturing, ‘Import embargo’ on 101 military items and Defence Production and Export Promotion Policy 2020.
In line with this, the Government of India is also supporting start-ups and promoting active participation in the industry. Describing MSMEs as ‘rising stars’ in aerospace and defence, the Defence Ministry estimates that their numbers would double to 16,000 over the next five years (by 2026) as they were integrated into global supply chains.
For example, in September 2020, Dynamatic Technologies Ltd., an aerospace company based in Bengaluru, announced a contract for constructing parts for the T-7A Red Hawk trainer, one of the largest and most advanced aircraft programmes built by Boeing and Saab in the world.
Conclusion
India has the competitive advantage over other countries due to low-cost production of components. With low labour cost, presence of resources and supporting government regulations, the country provides huge growth opportunities in the aerospace industry. The sector, backed by the government’s “Make in India” policies, promotes global players to invest in the manufacturing process and optimise it.
Further, India is considered a strategic geographical location and significant international market with high aircraft demand, technical skills and competitive labour costs by Boeing, Airbus and other leading OEMs. To meet the needs of Tier 1 suppliers and build an aerospace industry ecosystem in the country, manufacturers worldwide are partnering with Indian suppliers and small and medium enterprises. Active participation of global players is expected to further boost growth of the aerospace industry in India.
