India is the 4th-largest spender on defence, with budgeted spending of $38.5 billion in 2016-17. 36% of the defence budget is assigned for capital expenditures. However, India relies primarily on imports and has been the largest importer of arms in the world over the period 2010-15 with 14% share in arms imports, surpassing China and Pakistan.
India’s armed forces have a combined capital budget of $200 billion lined up over the next 4-5 years. While we continue to feel that imports will continue, it is imperative that we beef up our indigenous manufacturing capability to increase self-reliance in defence. That is the reason for offsets to be introduced by the Government. The offset opportunity is estimated to rise from $2.4 billion in 2013-14 to over $10 billion per annum in the next few years, just on the basis on current capital purchase requirements.
Despite revisions by governments over the years, offsets have had mixed impact. Exports have risen, but to parts & components for aerospace and not to products & platforms for defence. FDI has seem very limited impact.
Watch the Aurum CXO Dialogues webinar to view the key challenges and opportunities in the Indian Defence Offset Program with a panel of some of the most eminent speakers on the subject: Amit Cowshish (Dua Associates), V Sundar & Vikram Bihani (Aurum Equity Partners LLP).