India’s defence spend may hit $620 billion in FY14-22.

[SR-91]

Mumbai: India’s defence spend is expected to hit $620 billion between fiscal years 2014 and 2022, with half of it going into capital expenditure (capex), potentially turning a leading buyer of expensive arms into an arms supplier to rich nations.

Driven by both domestic and external demand, the annual opportunity for Indian companies—both public and private sector—is expected to reach $41 billion by fiscal year 2022 and $168 billion between fiscal 2014-2022, according to a report by industry association Federation of Indian Chambers of Commerce and Industry and financial services firm Centrum Capital Ltd.

The report, released earlier this month, noted that the government has consistently underspent vis-à-vis budgets set for the domestic defence sector, mainly due to procedural delays.
Majority of the spends were for maintenance and paying salaries of the Armed Forces rather than for buying new equipment.

“This anomaly is being taken very seriously by the government, which is planning to shift the current operating expenditure :capital expenditure ratio of 60:40 to 50:50 and eventually take it to 40:60 in the long term. Policy level changes in the past 2-3 years are considered positive by industry players,” the report noted.

Realisation of the importance of private sector for upgradation of arms is a major positive. We expect the domestic demand to be the primary force to drive industry growth,” it said.
The report said fiscal strains on the balance sheets of developed countries will lead to global firms starting to look for cheaper sourcing of products and services from other countries.

"We believe India has the key ingredients (large and relatively low cost engineering talent pool along with comfort of Western nations with India from a geo-political perspective) to deliver on the opportunity,” the report said. “However, India will have to significantly improve on some other factors (technology, lack of a defence manufacturing ecosystem, etc.),” the report added. Besides, the nature of warfare becoming more software intensive plays to the strengths of India, with its IT sector growth and its diversified presence.

Post a 10-15 year learning curve, some Indian companies are expected to move up the value chain and become independent system integrators across the technology-design-system integration value chain, either by themselves or as part of significant consortia, the report noted. This will in turn drive growth in the defence sector, as Indian companies ramp up their capacities to cater to growing domestic demand.

Sandeep Upadhyay, senior vice-president and head infrastructure solutions group at Centrum Capital, said he believes the Indian defence sector is at an inflexion point and poised to grow at a sustainable high rate in the next decade. “The prolific growth opportunities highlighted in the report, backed by a renewed focus from the government on streamlining policies and cultivating a conducive investment climate, potential investors should consider it as a strategic investment alternative,” he said.

India’s defence spend is large when compared with spends on other parts of the economy, but is under-represented in terms of market capitalization on listed stock exchanges. The defence spend has been in the range of 2-2.5% of the nominal gross domestic product (GDP) in the past decade, while market capitalization of Indian defence companies has never been above 0.7% of GDP at any given point in time. There are several reasons for this. A large part of the spend (60% currently) is revenue expenditure—which is internal in nature. Unlike in the US, where some non-core functions are outsourced, the Indian Armed Forces have always relied on doing these functions internally. “We see these functions changing over the next 5-10 years though we believe this area is unlikely to grow as fast as the capex,” the report said. Also, of this capex (40% of the budgeted spend), about 70% is imported—India is among the largest importers of weapon systems globally. This is reflected in the lower revenues of Indian corporate entities.

The main public sector units in defence are Hindustan Aeronautics Ltd, Bharat Electronics Ltd (BEL), Bharat Earth Movers Ltd (BEML), Mazagon Docks Ltd and Bharat Dynamics Ltd. Of these, BEL and BEML are listed on Indian stock exchanges BSE and NSE. The large private sector companies are all part of listed entities—such as Larsen & Toubro Ltd (L&T), Tata Power Ltd, Tata Motors Ltd, Mahindra and Mahindra Ltd, Bharat Forge Ltd—or unlisted holding firms such as Tata Sons Ltd. “We believe indigenization will take center stage and gather pace going forward. Government took a number of steps in this direction, by opening up defence production to the private sector and allowing 26% FDI (foreign direct investment) in 2001 and defined categorization hierarchy in favour of indigenous procurement in 2013,” the report said.

Recently, the FDI limit was further raised from 26% to a composite cap of 49% (FDI and FII) through the Foreign Investment Promotion Board route with full Indian management and control. The report hopes that the government’s Make in India initiative will also help Indian defence firms step up manufacturing.

The initiative, launched by Prime Minister Narendra Modi, includes simplification of the “Make” procedure, financial incentives such as tax holidays, and incentivizing research and development. The government has also streamlined its offset policy with innovative components, giving a thrust to medium and micro, small and medium enterprises sector, and simplifying export rules. The offset clause stipulates that 30-50% of the armament purchase value should be spent on buying Indian components, sub-systems and products. As part of capital purchase agreements with foreign defence firms, it is aimed at building an ecosystem of domestic suppliers.

“It has also been decided to promote defence and aerospace exports through an export promotion body,” the report said. “We believe that this initiative will incentivize private players to invest more into Aerospace and Defence sector and help exports grow.”

“In the next 5-10 years we expect Indian players to become systems integrators. We believe this process could be hastened by inorganic initiatives by groups with deep pockets (L&T, Tata, Mahindra & Mahindra, Reliance Industries, Bharat Forge, etc.) who may pick up assets divested by foreign defence players as they restructure and become trimmer,” the report added.

Read more at: http://www.livemint.com/Politics/PYhymbxIlcVXAtm3svUwFP/Indias-defence-spend-may-hit-620-billion-in-FY1422.html?utm_source=copy

 

[Abingdonboy]

The report, released earlier this month, noted that the government has consistently underspent vis-à-vis budgets set for the domestic defence sector, mainly due to procedural delays.
Majority of the spends were for maintenance and paying salaries of the Armed Forces rather than for buying new equipment.

“This anomaly is being taken very seriously by the government, which is planning to shift the current operating expenditure :capital expenditure ratio of 60:40 to 50:50 and eventually take it to 40:60 in the long term.

BIG news if this becomes a reality! 50-60% of an ever increasing defence budget (India's GDP growth rate is only going to increase in the coming years) going on capital expenditure will be great. Think about it, that would have been an additional $3.7-7.4 BILLION USD to spend on equipment this year alone, or to put it another way the M777, S-70B, AH-64E, CH-47F, Rafale, A330MRTT, More P-8Is and a few other big ticket items could ALL have been paid for in this current fiscal from just this move even if the budget was at 50:50, forget about 60:40.

As the economy/budget grows the extra amount of $$$ the Indian Mil will have to spend on defence purchases is mind blowing. Couple this with a more aggressive and efficient MoD (we are promised this anyway) and the Indian military can make up for their lost decade under the UPA and get to where it should be within a decade or so as a cutting edge military across the board.

 

[SR-91]

BIG news if this becomes a reality! 50-60% of an ever increasing defence budget (India's GDP growth rate is only going to increase in the coming years) going on capital expenditure will be great. Think about it, that would have been an additional $3.7-7.4 BILLION USD to spend on equipment this year alone, or to put it another way the M777, S-70B, AH-64E, CH-47F, Rafale, A330MRTT, More P-8Is and a few other big ticket items could ALL have been paid for in this current fiscal from just this move even if the budget was at 50:50, forget about 60:40.

As the economy/budget grows the extra amount of $$$ the Indian Mil will have to spend on defence purchases is mind blowing. Couple this with a more aggressive and efficient MoD (we are promised this anyway) and the Indian military can make up for their lost decade under the UPA and get to where it should be within a decade or so as a cutting edge military across the board.

What kind of raise would u expect for defence budget this fiscal year?

 

[Abingdonboy]

What kind of raise would u expect for defence budget this fiscal year?

It's hard to say but, to be honest, I'm not expecting a huge hike, perhaps just enough to cover inflation and a bit more. The GoI needs to focus on shoring up the economy and laying the groundwork for a decade plus of sustained 8%+ GDP growth so i wouldn't expect their first (proper) budget to put defence as a priority area. But to realistically money or lack thereof is not an issue, if the defence budget is managed properly i.e. deals signed on time and continuously throughout the year instead of letting a huge and daunting backlog form then there is plenty of money to go around and the fact that in the past 4-5 years it had been the norm for the MoD to RETURN unspent funds from their capex budget is truly sickening, This just shouldn't be happening, the reforms the DM has promised on defence procurements should address this largely.

This article alludes to this in respect of the capex:opex ratio, if it was bit more even, if not more in favour of the capex, there would be a huge difference to what India was buying each year (an additional $4-7 Billion USD A YEAR on equipment is not chump change- that's more than Pakistan's ENTIRE defence budget). And as the economy grows this extra figure being spent on defence is only going to get higher and higher- by 2020 if the ratio truly is 60:40 in favour of the capex the additional,not the total amount remember just the extra, amount India is able to spend on procurements every year would/could be in excess of $10 billion USD.

Honestly, if the defence budget can be managed properly, it won't need massive hikes year on year, the money is there it just needs sensible polices and leaders at the top.

 

[axisofevil]

BIG news if this becomes a reality! 50-60% of an ever increasing defence budget (India's GDP growth rate is only going to increase in the coming years) going on capital expenditure will be great. Think about it, that would have been an additional $3.7-7.4 BILLION USD to spend on equipment this year alone, or to put it another way the M777, S-70B, AH-64E, CH-47F, Rafale, A330MRTT, More P-8Is and a few other big ticket items could ALL have been paid for in this current fiscal from just this move even if the budget was at 50:50, forget about 60:40.

As the economy/budget grows the extra amount of $$$ the Indian Mil will have to spend on defence purchases is mind blowing. Couple this with a more aggressive and efficient MoD (we are promised this anyway) and the Indian military can make up for their lost decade under the UPA and get to where it should be within a decade or so as a cutting edge military across the board.

Just one correction: LOST DECADES under Congress!

 

[Abingdonboy]

Just one correction: LOST DECADES under Congress!

You do make me chuckle bro with your anti-Congress fixation and fair enough, I am getting more that way inclined myself but I don't think it does much good to look beyond the immediate past- 10 years or so. Anything before that is history.

 

[axisofevil]

You do make me chuckle bro with your anti-Congress fixation and fair enough, I am getting more that way inclined myself but I don't think it does much good to look beyond the immediate past- 10 years or so. Anything before that is history.

You know bro I used to like the ideals and what they stood for but when I do the research, nothing adds up. From now on, I'll just focus on building and moving India forward. We all got to unite and work hard like the Chinese.

 

[Raje amar]

There is some miss interpretation of the figures. I suppose the $640 bill is cumulative spent across the years I.e. 2014 till 2022. And not increase I n the absolute terms.
Though considered the cumulative figure it is huge.....

 

[Ind4Ever]

You do make me chuckle bro with your anti-Congress fixation and fair enough, I am getting more that way inclined myself but I don't think it does much good to look beyond the immediate past- 10 years or so. Anything before that is history.

He is correct. Why don't you call square a square . ? Congress ruined a decade

 

[Omega007]

There is some miss interpretation of the figures. I suppose the $640 bill is cumulative spent across the years I.e. 2014 till 2022. And not increase I n the absolute terms.
Though considered the cumulative figure it is huge.....

Nah,no one made any misinterpretation of the figures.It's quite clear that the figure of 640 billion USD is the cumulative expenditure spread across a decade may be.

 

[ito]

That is huge. If 50% of $610 billin goes into Capex, meaning India is going to acquire $310 billion of new weapons in next 7 years.

 

[Echo_419]

You do make me chuckle bro with your anti-Congress fixation and fair enough, I am getting more that way inclined myself but I don't think it does much good to look beyond the immediate past- 10 years or so. Anything before that is history.

He is right you know
On topic
Hope the govt makes sure that majority of this money stays within the country

 

[1ndy]

Didn't read the OP but is spending this much is a good thing or bad?

 

[ApparentRaceTraitor]

Didn't read the OP but is spending this much is a good thing or bad?

Good for India, bad for potential threats...

 

[Abingdonboy]

From now on, I'll just focus on building and moving India forward. We all got to unite and work hard like the Chinese.

That's the way bro, no need for cult worship, support those who will do good for India of whatever colour, gender, religion, political affiliation etc they are. The sort of rigidity I used to see in Indians (that thankfully is dying away now) when it came to partisanship was incredibly counter productive for the greater good.

There is some miss interpretation of the figures. I suppose the $640 bill is cumulative spent across the years I.e. 2014 till 2022. And not increase I n the absolute terms.
Though considered the cumulative figure it is huge.....

No misrepresentation that I can see bro. They are quite clear this is the cumulative figure to be spent on defence from 2014-2022.

Didn't read the OP but is spending this much is a good thing or bad?

How can it be anything but a good thing? This spending won't come at the cost of anything else as the defence budget will be kept below 2.5% of GDP the numbers involved are simply huge because India's economy is very large and growing at a healthy rate.