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Aerospace and Defense Sectors

  • India has the third largest armed forces in the world.
  • India is one of the largest importers of conventional defence equipment and spends about 31.5% of its total defence budget on capital acquisitions.
  • About 60% of its defence requirements are met through imports.
  • The allocation for Defence in the Budget 2015-16 was approximate INR 2467.27 Billion.
  • 31.5% of budget spent on capital acquisitions.
  • 60% of requirements met by imports.
  • INR 250 Billion to be invested in 7-8 years.
  • India's current requirements on defence are catered largely by imports. The opening of the strategic defence sector for private sector participation will help foreign original equipment manufacturers to enter into strategic partnerships with Indian companies and leverage the domestic markets and also aim at global business. Besides helping build domestic capabilities, this will bolster exports in the long term.
  • Opportunities to avail defence offset obligations to the tune of approximately INR 250 Billion during the next 7-8 years.
  • The offset policy (which stipulates the mandatory offset requirement of a minimum 30% for procurement of defence equipment in excess of INR 3 Billion) introduced in the capital purchase agreements with foreign defence players would ensure that an eco-system of suppliers is built domestically.
  • The government policy of promoting self-reliance, indigenisation, technology upgradation and achieving economies of scale and developing capabilities for exports in the defence sector.
  • The country's extensive modernisation plans, an increased focus on homeland security and India's growing attractiveness as a defence sourcing hub.
  • High government allocation for defence expenditure.
  • Defence Production Policy, 2011 to encourage indigenous manufacture of defence equipment. Defence Procurement Procedure (DPP) has been amended.
  • Defence products list for industrial licensing, has been articulated in June 2014, wherein large numbers of parts/components, castings/forgings etc. have been excluded from the purview of industrial licensing. The same is available at the DIPP's website,
  • The defence security manual for the private sector defence manufacturing units has been finalised and put in public domain by the Department of Defence Production. The manual clarifies the security architecture required to be put in place by the industry while undertaking sensitive defenceequipments.
  • There is an enormous potential and huge opportunities for collaboration and creation of joint ventures in the aerospace sector in India for establishing Maintenance Repair Overhaul (MRO) facilities for civil and military aircraft, overhaul and maintenance of aero engines and production of avionics, components and accessories both in the civil and military aviation sectors. Major global aviation industry are already eyeing the local market in India and scouting for outsourcing aerospace and defense products as India is fast emerging as a center for engineering and design services.
  • Currently the Indian aerospace industry is one of the fastest-growing aerospace markets in the world with an expanding consumer base comprising airlines, businesses and High Net worth Individuals.All segments in the aerospace industry, including civil and military aviation and space, are showing a significant level of growth.
  • Another reason for growth prospects is the magnificent demand of the Indian Air force.The aerospace and defense sector is currently under the control of Defense Public sector units like Hindustan Aeronautics Limited (HAL), Bharat Electrical Limited (BEL) etc.
  • The aerospace and defense sector is currently under the control of Defense Public sector units like Hindustan Aeronautics Limited (HAL), Bharat Electrical Limited (BEL) etc.
  • Hindustan Aeronautics Limited (HAL), which is fully owned by the Government of India, is the premier aerospace company in the country. HAL has played a major role in the Defense aviation of India through design, manufacture and overhaul of fighters, trainers, helicopters, transport aircraft, engines, avionics and system equipment. HAL is now ranked 34th in the list of world's top 100 defense companies.
  • The Kelkar Committee report recommends provision of a level playing field to the private industry in defense production. It demands transparency in awarding defense contracts to Private and Public sector companies, and treat them at par with each other. An alternative to private sector involvement in defense production, can be the revamping and restructuring of the defense industrial base. Introducing elements of greater accountability and efficiency can be the first steps in this policy reform. By making the organization, such as DRDO, DPSUs and Ordnance factories, more accountable, and not providing them ad-hoc extensions in the time frame for project completion, their competitiveness can be encouraged. It focused on indigenization of the production and transfer of know-how by inserting offset clauses in all major defense deals of the country.
  • The offset obligations of the companies supplying the defense goods to India have gone past $10 billion as per an estimate. The picture therefore is clear, that there is a huge potential and opportunity for the indigenous aerospace industry.
  • Private sector has also been taking an active part in the industry, either directly or under joint venture companies or joint collaborations.

Investment Opportunities

  • Defense offsets.
  • Defense products manufacturing.
  • Supply chain sourcing opportunity.
  • Provision of services.

Defense Sector Policy


  • The defense procurement is governed by the Defense Procurement Procedure (DPP). The government decided to revise the DPP every year. However, after DPP 2013, changes / clarifications have been issued. It is likely that new DPP 2016 be introduced this year, which will replace DPP 2013 in new bids.


  • The key objectives of the defense offset policy is to leverage capital acquisitions to develop the Indian defense industry. Mandatory offset requirements of a minimum of 30% for procurement of defense equipment in excess of INR 3 Billion have been envisaged.

Industrial licenses

  • The initial validity period of industrial licenses has been increased to eighteen years from the present two years.
  • Guidelines for the extension of validity of industrial licenses have been issued.
  • Partial commencement of production is treated as commencement of production of all the items included in the license.

Foreign Direct investment (FDI) Policy in Defense sector

  • Upto 49 per cent investment is allowed under the automatic route, above 49% under Government route on case-to-case basis, wherever it is likely to result in access to modern and 'state of art' technology in the country.