India’s government officially opened up the defense industry to foreign investors, allowing defense contractors from abroad to own up to 49% instead of 26% of Indian military equipment makers. The plan was first announced in the July 10 budget by new finance minister, Mr Arun Jaitley. The cabinet approval is all the proposal needed to become a national policy. Indian defense contractors are known entities in the U.S. The wings of the C-130 Hercules are made in Hyderabad by Tata Advanced Systems. Tata also manufactures the main cabin of the Sikorsky S-92. India is world’s largest importer of military equipment. The higher investment cap will help it attract the investment it needs to modernize its military. Over the last 10 years, India’s defense industry brought in just $4.1 million in foreign direct investment. McKinsey & Company said in a report released last year that India’s $12 billion defense market will likely reach somewhere between $18 billion and $20 billion by 2020 for capital equipment alone. Platform spending, mainly Naval equipment, will likely hit $150 billion by 2017. India will continue to be a large net importer of defense hardware, however. Domestic demand will likely be set by five factors, according to McKinsey. These include geopolitical scenarios relevant to Indian foreign policy, such as Pakistan and home-grown terrorist groups that may necessitate the need for new defense equipment. Moreover, replacing outdated weapons and delivery systems are also high on the demand list. If India’s economy improves, as many economists are now forecasting since Mr Narendra Modi and his BJP party swept into power in May, the government will have more to spend on defense. “The domestic industry seems poised for another period of rapid growth,” the report stated. “India has the potential to become an attractive destination for governments and companies around the world that need engineering services and components.” As defense budgets shrink in the U.S., some contractors have turned to India to offset higher labor costs at home. Lockheed Martin’s C-130 is an example of that. Such opportunities for offshoring could mean an additional $6 billion to $10 billion for Indian defense contractors over the next six years. India is in its early days of expanding defense relations, including with the U.S. The country’s defense spending will be determined by its geopolitical situation and its budding defense ties with Washington. Events and political relationships with the U.S. and other countries, namely France and Russia, will have the biggest potential to spark “substantial changes in India’s strategic relationships and ultimately the balance of trade in the global defense industry,” the McKinsey report stated. Some of the main orders expected include Mirage and MiG-29 upgrades along with new, fifth-gen multi-role combat aircraft for the Air Force. On sea, India will likely spend upwards of $40 billion on nuclear submarines and aircraft carriers. For land vehicles, Indian made tanks and U.S. made Javelin anti-tank missiles are also likely purchases.
Source: http://www.forbes.com/
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