A Report on Opportunities in the Indian Aerospace and Defence Industry
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A report on opportunities in the Indian Aerospace and Defence industry August, 2020 home. kpmg/in 2 Disclaimer a) The publication contains information obtained from the public domain or external sources which have not been verified for authenticity, accuracy or completeness. b) We have not performed an audit and do not express an opinion or any other form of assurance. 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All rights reserved. 3 List of abbreviations Abbreviation Expansion ADIG Aerospace & Defence Industry Group AMCA Advanced Medium Combat Aircraft AoN Acceptance of necessity BE Budgeted estimate CAGR Cumulative annual growth rate CAPF Central Armed Police Force CRPF Central Reserved Police Force DPP Defence Procurement Procedure DPSU Defence Public Sector Undertakings DRDO Defence Research and Development Organisation DSE UK Defence and Security Exports EODB Ease of doing business EoI Expression of interest FDI Foreign direct investment GoI Government of India HAL Hindustan Aeronautics Limited IAF Indian Air Force ICG Indian Coast Guards LCA Light Combat Aircraft MHA Ministry of Home Affairs MoD Ministry of Defence NOC No objection certificate OEM Original equipment manufacturer OF Ordnance Factory PMU Project management unit RE Revised estimate RFI Request for information RFP Request for proposal SIPRI Stockholm International Peace Research Institute UAV Unmanned aerial vehicle UGV Unmanned ground vehicle © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 Table of contents 1 Foreword 2 India’s defence manufacturing 3 Impact of COVID-19 on defence spending 4 Changes in draft DPP 2020 & key reforms 5 Opportunities 6 Emerging and contemporary technologies 7 About Us © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 Foreword Richard McCallum, Vice Chair, UKIBC India It is a paradox that while India has one of India’s Defence Procurement Procedures the largest defence industrial complexes in (DPP). The draft DPP 2020, released in the the developing world – with 39 ordnance third week of March 2020, attempts to factories, 9 Defence Public Sector further strengthen the defence ecosystem in Undertakings (DPSUs), over 50 Defence the country. Research and Development Organisation (DRDO) research laboratories, a small but Defence and Aerospace remains a critical flourishing private defence sector and a sector for India – and for the success of legacy including the design and production Make in India. A flourishing Indian defence of a 4th generation fighter, nuclear sector requires increased foreign submarine, a main battle tank and technology transfer and foreign investment intercontinental ballistic missile – the in India which will ultimately lead to co- country continues to be overwhelmingly development and co-creation of capabilities dependent on arms and equipment imports. which can meet not just the needs of India This low level of indigenisation means India but also be exported to third countries. spends billions of dollars each year as one of the world’s biggest arms importers. At the same time, the UK Government is looking to deepen its international To address the imbalance between the relationships after leaving the European import of defence equipment and Union and is now focused on making India indigenous manufacture, the Indian a long-term and strategic partner. This will government launched its ambitious ‘Make involve much more than just hardware sales in India initiative’ in 2014. Under the – for example, it means focusing on specific initiative, which aims to encourage areas of technology collaboration and skills- companies to manufacture in India and building in India with a view to involvement attract inward investment, several reforms in long—term platforms and programmes. have been taken to revitalise and promote The MoU on Defence Technology and an indigenous defence industry. Reforms Industrial Capability Cooperation, signed in include raising the foreign direct investment April 2019, represents a major shift in the (FDI) cap, simplification and streamlining of UK’s approach to India and will help UK defence industrial licensing, the articulation industry to engage with Indian industry and of a first ever defence exports strategy, the the Government of India (GoI). rationalisation of taxes and, most importantly, an ongoing attempt to simplify © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 In association with our partner KPMG, the UK India Business Council (UKIBC) has compiled a list of short, medium and long- term opportunities in the Indian Defence and Aerospace industry. We want to catalyse UK firms with appropriate technology to consider (or reconsider) how they engage with India. Owing to the rapidly evolving nature of new technologies in this sector, we also include a separate section on opportunities in Emerging Technologies. UKIBC is the UK Government’s partner for business in the UK-India economic corridor, with a team of 50 across India and the UK. In 2019, at the request of the UK Defence & Security Exports (DSE), UKIBC launched the Aerospace & Defence Industry Group (ADIG), the purpose of which is to enhance UK-India strategic cooperation, advocate for improvements in the operating and procurement environments of both countries, support SMEs with opportunity mapping and connections and act as a voice for British business interests in India. - Richard McCallum, Vice Chair, UKIBC India © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 Foreword Abhishek Verma, Partner and Lead, Aerospace and Defence, KPMG The Government of India (GoI), over the past few years, has demonstrated its focus towards bringing the cutting-edge technologies for its armed forces that can augment India’s ability to monitor, control and resolve border as well as internal security threats. As India’s security concerns grow with its increased engagement in the extended neighborhood, the pressure of enhancing the capabilities of the armed forces is now greater than ever. The slew of defence reforms and government initiatives have been focussed on adoption of modern technology in the defence sector, while developing indigenous manufacturing capability. India aspires to develop a defence manufacturing ecosystem worth USD 5 billion by 2025. GoI’s crucial initiatives such as ‘Make in India’ and ‘Atmanirbhar Bharat’ consider defence as a key sector for achieving the target of USD 5 trillion economy. The defence manufacturing capabilities in the country are still in its nascent phase and will need a lot of support from global defence suppliers. On the other hand, India offers a ocean of growth opportunities for foreign players through partnerships. Through this paper, we intend to highlight key opportunities in the Indian A&D sector. We would like to thank UKIBC for giving us the opportunity in collaborating with them for circulation of the document to their esteemed members. - Abhishek Verma, Partner & Lead, Aerospace and Defence KPMG in India © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 2. India’s defence manufacturing - a sunrise sector India’s defence indusrialisation immediately past, the focus shifted towards co- after independence in 1947 was influenced development and co-production with by the country’s socialistic