Indian Defense Industry

Topics: Indian Air Force, Procurement, India Pages: 37 (3855 words) Published: May 19, 2014
44

A bright future for India’s
defense industry?

The stars might be aligning for India’s defense sector. Here’s what the government and industry can do to seize the moment.

Brajesh Chhibber and
Rajat Dhawan

India’s defense industry, which has grown

will have to learn to manage some uniquely

substantially in recent years, seems headed for

Indian requirements.

even better days. Growth in domestic demand
should continue to be robust, the government has

To build tomorrow’s industry, India’s Ministry

a clear vision for an indigenous defense indus-

of Defence and its contractors might look to

try, the country’s attractiveness to global defense

mature markets such as France and the United

companies is rising due to shrinking global

Kingdom, as well as to developing markets

defense budgets, and there is tremendous export

such as South Korea, and apply some of the ideas

potential in engineering services and compo-

pioneered there. One essential move is to decide

nent sourcing.

on core capabilities and focus efforts on building
these in India. Other steps include improving

The way forward is not without some signifi-

the talent market, building skills in the govern-

cant obstacles, however. In particular, the

ment and private companies, and ensuring

government’s new purchasing procedures must

open and inclusive access to defense markets.

prove their mettle, and broadening and
shifting the nation’s strategic alignments will be

If the government and its partners embrace the

challenging. For their part, defense firms

challenge, India in 2020 will have a vibrant

A bright future for India’s defense industry?

45

industry capable of meeting not only its domestic

noncompetitive, bilateral agreements. These

needs but also the needs of other nations. That

accounted for approximately 70 percent of

would give India a greater degree of self-reliance,

the total from 2000 to 2010. India increasingly

of course, and contribute to a stronger trade

looked beyond its traditional supplier, Russia,

balance and substantial job creation.

for weapons procurement and began to include

Neil Webb

France, Israel, the United Kingdom, and
A decade in review

the United States in the mix. However, even with

India’s defense market saw robust growth over the

increased purchases, equipment levels in

past decade. Government capital spending

several key categories have declined over the last

quadrupled from $3 billion in 2000 to $12.2 billion

decade due to rising obsolescence and delayed

in 2010.1 By this measure, India was the sixth-

procurement (Exhibit 1).

biggest spender on defense worldwide from 2000

McKinsey on Defense 2013
to 2010.
India defense
Exhibit 1 of 6
Most capital spending was done through intergovernmental purchases, which are typically

Exhibit 1

These intergovernmental purchases often include

are licensed to produce the contracted equip-

a significant role for defense public-sector
undertakings (DPSUs)2 —Indian companies that

Inventory has declined for several platforms.
Count of equipment

2000

Some platforms have seen growth . . .

. . . while others are being depleted

Tanks
(Army)

Fighters
(Air Force and
Navy)

2011

Surface
combatants1
(Navy)

Attack
helicopters
(Air Force)

155 mm
howitzers
(Army)

4,117
3,414

21%

758
646

–15%

410
310

21

1 The

23

–24%
32

10%

surface-combatants category includes destroyers, frigates, and corvettes, but not submarines.

Source: The Military Balance, The International Institute For Strategic Studies, 2000 and 2011 editions

20

–38%

46

McKinsey on Government Spring 2013

McKinsey on Defense 2013
India defense
Exhibit 2 of 6

Exhibit 2

The Defence Procurement Procedure, or DPP,
guides standard procurement.
Indian defense purchasing...
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