Indian Defense Market, Forecast to 2026

New Policy Dynamics, Market Requirements, and Programs Present Myriad Opportunities for Companies
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Published: 13 Jun 2017

According to SIPRI, India was the largest arms importer in the world during 2011–2015. The Indian government has revised the procurement policy after seeking responses from industry stakeholders. Frost & Sullivan has analyzed the competitive landscape of defense in India, which consists of public sector undertakings (PSUs), foreign defense companies, and emerging Indian companies. The Indian Armed Forces have not been able to spend the entire defense budget allocated, owing to straitjacketed procurement procedures and inherent delays; and the gap between allocated and actual defense spending has been increasing over the years. Frost & Sullivan expects the underspend in defense to decrease during the forecast period, as the government modifies policies to simplify procurement. Reduced underspending will drive defense budgets and the market will expand. While the three services have had several modernization plans under way, some of these have been stalled due to the lack of clarity and coherence in procurement. The Indian government seeks to address this through the new Defense Procurement Policy (DPP) 2016 that is aimed at streamlining procurement and giving more leeway to suppliers, opening up Foreign Development Investment, allowing single vendor participation for tenders, and initiating a “Strategic Partner” model. The government is outlining policies to convert India into a defense hub, with indigenous manufacturing being given the highest priority. Defense exports will be permitted and foreign direct investment (FDI) holdings have been tweaked to enable more foreign original equipment manufacturers (OEMs) to set up ventures in India. Several multi-billion dollar projects are expected to come to fruition. While a few of these projects will be executed through government-to-government (G2G) and off-the-shelf purchases, the majority will be through partnerships between indigenous companies and foreign OEMs. Offset regulations are being relaxed to speed up procurements and provide flexibility for suppliers while approaching tenders. The focus is on fast-track deals, tailored projects with Indo-foreign OEM partnerships, and involving micro, small, and medium enterprises. As per the Defense Procurement Policy 2016, the way ahead for India is by developing indigenous capabilities in defense through foreign collaboration. This is a critical time for foreign OEMs. The decisions made now, in terms of partnerships with emerging Indian firms, leveraging key clauses in the Defense Procurement Policy 2016 and understanding the track of Indian modernization, will help them win contracts and reap benefits. The report presents certain insights necessary to help companies proactively establish themselves in a position of competitive advantage in India.

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