The Future of the Indian Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2023

Table of Contents

1. Introduction 10

1.1. What is this Report About? 10

1.2. Definitions 10

1.3. Summary Methodology 12

1.4. About Strategic Defense Intelligence 13

2. Executive Summary 14

3. Market Attractiveness and Emerging Opportunities 17

3.1. Current Market Scenario 19

3.1.1. Primary Threat Perception 19

3.1.2. Military Doctrine and Strategy 21

3.1.3. Military Fleet Size 25

3.1.4. Procurement Programs 33

Ongoing Procurement Programs 33

Future Procurement Programs 37

Top Procurement Programs by Value (US$ Million) 2018-2023 40

3.1.5. Social, Political and Economic Environment and Support for Defense Projects 41

3.1.6. Political and Strategic Alliances 42

3.2. Defense Market Size Historical and Forecast 44

3.2.1. Indian defense expenditure, inclusive of pensions, expected to be US$401.7 billion cumulatively over 2019–2023 44

3.2.2. Indian defense expenditure, excluding pensions, expected to be US$287.5 billion cumulatively over 2019–2023 46

3.2.3. Modernization initiatives, hostile neighbors, territorial disputes, and the implementation of OROP and the 7th Pay Commission will be the key growth drivers 48

3.2.4. Defense budget as a percentage of GDP will remain at an average of

1.5% over the forecast period 50

3.3. Analysis of Defense Budget Allocation 51

3.3.1. Revenue expenditure expected to increase over the forecast period 51

3.3.2. Procurement of equipment is expected to pick up over the forecast period 53

3.3.3. Army continues to see the largest share of the defense budget 55

3.3.4. Defense expenditure allocation for the army expected to increase over the forecast period 56

3.3.5. Per capita defense expenditure is expected to increase over the forecast period 60

3.4. Homeland Security Market Size and Forecast 61

3.4.1. India is projected to spend US$88.6 billion cumulatively on homeland security over the forecast period 61

3.4.2. Homeland security is expected to be driven by cross-border terrorism and domestic conflicts 64

3.4.3. India falls under the “highly affected” terrorism category 66

3.4.4. India faces a high level of threat from foreign terrorist organizations 67

3.4.5. India has a terrorism index score of

7.5 69

3.5. Benchmarking with Key Global Markets 70

3.5.1. India’s defense budget expected to grow at a CAGR of

8.09% 70

3.5.2. The US and China dominate the global defense industry 72

3.5.3. India allocates a lower share of its GDP to defense than other Asian countries 73

3.6. Market Opportunities: Key Trends and Growth Stimulators 74

3.6.1. Top Defense Market Sectors by Value (US$ Million) – Projections over 2018-2023 74

3.6.2. Land-Based C4ISR 75

3.6.3. Critical Infrastructure Protection (CIP) – Physical Security 76

3.6.4. Multirole Aircraft 77

4. Defense Procurement Market Dynamics 79

4.1. Import Market Dynamics 81

4.1.1. Indian defense imports slowly declining 81

4.1.2. Russia dominates Indian arms imports 82

4.1.3. Aircraft accounted for the majority of defense imports during 2013–2017 83

4.2. Export Market Dynamics 84

4.2.1. India’s low profile in defense exports is set to change over the forecast period 84

4.2.2. Underdeveloped nations across Asia and Africa are the main importers of Indian defense goods 85

4.2.3. Naval vessels accounted for the majority of defense imports during 2013–2017 86

5. Industry Dynamics 87

5.1. Five Forces Analysis 87

5.1.1. Bargaining Power of Supplier: Low to Medium 88

5.1.2. Bargaining Power of Buyer: High 89

5.1.3. Barrier to Entry: Low to Medium 89

5.1.4. Intensity of Rivalry: High 89

5.1.5. Threat of Substitution: Medium to High 89

6. Market Entry Strategy 90

6.1. Market Regulation 90

6.1.1. Defense Procurement Procedure (DPP) – 2016: 90

6.1.2. Offset policy to drive defense industrial modernization 90

6.1.3. Main features of revised Defense Procurement Procedure (DPP) – 2016 92

6.1.4. Private sectors permitted to produce arms and ammunition under the new Draft Arms and Ammunitions Manufacturing Policy (DAAM) 93

6.1.5. Foreign direct investment (FDI) increased to 49% in the Indian defense sector 93

6.2. Market Entry Route 95

6.2.1. Budgeting Process 95

6.2.2. Procurement Policy and Process 96

6.2.3. Foreign OEMs are forming joint ventures in order to enter the market 97

6.2.4. India emerges as a key outsourcing hub for global defense companies 99

6.3. Key Challenges 100

6.3.1. Offset policy is biased towards the domestic public and private sectors 100

6.3.2. Insufficient information and transparency regarding future plans 100

6.3.3. Bureaucracy, corruption, and long project delays 101

6.3.4. Developing advanced, low-cost solutions is essential to gain market share 101

7. Competitive Landscape and Strategic Insights 102

7.1. Competitive Landscape Overview 102

7.1.1. Domestic public companies have a strong presence in the Indian defense industry 103

7.2. Key Foreign Companies 106

7.2.1. Lockheed Martin Corporation: Overview 106

7.2.2. Lockheed Martin Corporation: Products 106

7.2.3. Lockheed Martin Corporation: Recent Announcements and Strategic Initiatives 107

7.2.4. Lockheed Martin Corporation: Alliances 108

7.2.5. Lockheed Martin Corporation: Recent Contract Wins 109

7.2.6. BAE Systems Plc.: Overview 110

7.2.7. BAE Systems Plc.: Products 110

7.2.8. BAE Systems Plc.: Recent Announcements and Strategic Initiatives 110

7.2.9. BAE Systems Plc.: Alliances 111

7.2.10. BAE Systems Plc.: Recent Contract Wins 112

7.2.11. Thales: Overview 113

7.2.12. Thales: Products 113

7.2.13. Thales: Recent Announcements and Strategic Initiatives 113

7.2.14. Thales: Alliances 114

7.2.15. Thales: Recent Contract Wins 115

7.2.16. Boeing: Overview 116

7.2.17. Boeing: Products 116

7.2.18. Boeing: Recent Announcements and Strategic Initiatives 116

7.2.19. Boeing: Alliances 117

7.2.20. Boeing: Recent Contract Wins 117

7.3. Key Public Sector Companies 118

7.3.1. Mazagon Docks Limited: Overview 118

7.3.2. Mazagon Docks Limited: Products 118

7.3.3. Mazagon Docks Limited: Recent Announcements and Strategic Initiatives 118

7.3.4. Mazagon Docks Limited: Alliances 120

7.3.5. Mazagon Docks Limited: Recent Contract Wins 120

7.3.6. Hindustan Aeronautics Limited: Overview 121

7.3.7. Hindustan Aeronautics Limited: Products and Services 121

7.3.8. Hindustan Aeronautics Limited: Recent Announcements and Strategic Initiatives 122

7.3.9. Hindustan Aeronautics Limited: Alliances 123

7.3.10. Hindustan Aeronautics Limited: Recent Contract Wins 124

7.3.11. Bharat Electronics Limited: Overview 126

7.3.12. Bharat Electronics Limited: Products and Services 126

7.3.13. Bharat Electronics Limited: Recent Announcements and Strategic Initiatives 127

7.3.14. Bharat Electronics Limited: Alliances 128

7.3.15. Bharat Electronics Limited: Recent Contract Wins 129

7.3.16. Bharat Electronics Limited – Financial Analysis 130

7.3.17. Bharat Dynamics Limited: Overview 132

7.3.18. Bharat Dynamics Limited: Products 132

7.3.19. Bharat Dynamics Limited: Recent Announcements and Strategic Initiatives 132

7.3.20. Bharat Dynamics Limited: Alliances 133

7.3.21. Bharat Dynamics Limited: Recent Contract Wins 133

7.3.22. Ordnance Factory Board: Overview 134

7.3.23. Ordinance Factory Board: Products 134

7.3.24. Ordinance Factory Board: Recent Announcements and Strategic Initiatives 134

7.3.25. Ordinance Factory Board: Alliances 135

7.3.26. Ordinance Factory Board: Recent Contract Wins 135

7.3.27. BEML: Overview 136

7.3.28. BEML: Products 136

7.3.29. BEML: Recent Announcements and Strategic Initiatives 137

7.3.30. BEML: Alliances 138

7.3.31. Goa Shipyard Limited: Overview 140

7.3.32. Goa Shipyard Limited: Products and Services 140

7.3.33. Goa Shipyard Limited: Recent Announcements and Strategic Initiatives 141

7.3.34. Goa Shipyard Limited: Alliances 141

7.3.35. Goa Shipyard Limited: Recent Contract Wins 142

7.4. Key Private Sector Companies 143

7.4.1. Tata Advanced Systems Limited: Overview 143

7.4.2. Tata Advanced Systems Limited: Products 143

7.4.3. Tata Advanced Systems Limited: Recent Announcements and Strategic Initiatives 143

7.4.4. Tata Advanced Systems Limited: Alliances 144

7.4.5. Tata Advanced Systems Limited: Recent Contract Wins 145

7.4.6. Mahindra Defense Systems: Overview 146

7.4.7. Mahindra Defense Systems: Products 146

7.4.8. Mahindra Defense Systems: Recent Announcements and Strategic Initiatives 146

7.4.9. Mahindra Defense Systems: Alliances 147

8. Business Environment and Country Risk 149

8.1. Economic Performance 149

8.1.1. GDP Per Capita, US$ 149

8.1.2. GDP (Current US$ Billion) 150

8.1.3. Exports of Goods and Services (Current LCU Billion) 151

8.1.4. Imports of Goods and Services (Current LCU Billion) 152

8.1.5. Gross National Disposable Income (US$ Billion) 153

8.1.6. LCU per US$ (Period Average) 154

8.1.7. Market Capitalization of Listed Companies (US$ Billion) 155

8.1.8. Market Capitalization of Listed Companies (% of GDP) 156

8.1.9. Total Government Cash Surplus/Deficit as a Percentage of GDP (LCU) 157

8.1.10. Goods Exports as a Percentage of GDP 158

8.1.11. Goods Imports as a Percentage of GDP 159

8.1.12. Services Imports as a Percentage of GDP 160

8.1.13. Services Exports as a Percentage of GDP 161

8.1.14. Foreign Direct Investment, net (BoP, Current US$ Billion) 162

8.1.15. Net Foreign Direct Investment as a Percentage of GDP 163

8.1.16. Mining, Manufacturing, and Utilities Output (LCU Billion) 164

9. Appendix 165

9.1. About SDI 165

9.2. Disclaimer 165

List of Tables

Table 1: The Indian Army Strength 25

Table 2: Indian Navy Strength 29

Table 3: Indian Air Force Strength 31

Table 4: India – Ongoing Procurement Programs 33

Table 5: India – Future Procurement Programs 37

Table 6: Top Indian Defense Procurement Programs by Value (US$ Million) 2018-2023 40

Table 7: Indian Defense Expenditure Including Pensions (INR Billion & US$ Billion), 2014–2023 44

Table 8: Indian Defense Expenditure Excluding Pensions (INR Billion & US$ Billion), 2014–2023 46

Table 9: Indian GDP Growth vs. Defense Expenditure as Percentage of GDP Growth, 2014–2023 50

Table 10: Indian Defense Budget Split Between Capital and Revenue Expenditure (%), 2014–2023 51

Table 11: Indian Capital Expenditure (INR Billion & US$ Billion), 2014–2023 53

Table 12: Indian Defense Budget Split (%), 2014–2023 55

Table 13: Indian Defense Budget in INR Billion – Breakdown by Services (Army, Navy, Air Force and Others) 2014–2023 56

Table 14: Indian Defense Budget in US$ Billion – Breakdown by Services (Army, Navy, Air Force and Others) 2014–2023 58

Table 15: Indian Per Capita Defense Expenditure (US$), 2014–2023 60

Table 16: Indian Homeland Security Budget (INR Billion & US$ Billion), 2014–2023 62

Table 17: Terrorism Index, 2018 67

Table 18: Benchmarking with Key Markets – 2014–2018 vs. 2019–2023 70

Table 19: Top Indian Defense Market Sectors by Value (US$ Million) – 2018-2023 74

Table 20: Offset Policy in India 91

Table 21: Indian Budget Formation Timetable: 95

Table 22: Market Entry Strategies and Key Objectives of Foreign Companies in the Indian Defense Sector 97

Table 23: Key Players and their Operations in the Indian Defense Industry 99

Table 24: Top Defense Suppliers in The Indian Defense Industry – By Value (US$ Million) 2018-2023 102

Table 25: Scale of Operations of Domestic Public &Private Sector Companies in the Indian Defense Industry 103

Table 26: Lockheed Martin Corporation – Products 106

Table 27: Lockheed Martin Corporation – Alliances 108

Table 28: Lockheed Martin Corporation – Recent Contract Wins 109

Table 29: BAE Systems Plc. – Products 110

Table 30: BAE Systems Plc. – Alliances 111

Table 31: BAE Systems Plc. – Recent Contract Wins 112

Table 32: Thales – Products 113

Table 33: Thales – Alliances 114

Table 34: Thales – Recent Contract Wins 115

Table 35: Boeing – Products 116

Table 36: Boeing – Alliances 117

Table 37: Boeing – Recent Contract Wins 117

Table 38: Mazagon Docks Limited – Products 118

Table 39: Mazagon Docks Limited – Alliances 120

Table 40: Mazagon Docks Limited – Recent Contract Wins 120

Table 41: Hindustan Aeronautics Limited – Products and Services 121

Table 42: Hindustan Aeronautics Limited – Alliances 123

Table 43: Hindustan Aeronautics Limited – Recent Contract Wins 124

Table 44: Bharat Electronics Limited – Products and Services 126

Table 45: Bharat Electronics Limited – Alliances 128

Table 46: Bharat Electronics Limited – Recent Contract Wins 129

Table 47: Bharat Dynamics Limited – Products 132

Table 48: Bharat Dynamics Limited – Alliances 133

Table 49: Bharat Dynamics Limited – Recent Contract Wins 133

Table 50: Ordinance Factory Board – Products 134

Table 51: Ordinance Factory Board – Alliances 135

Table 52: Ordinance Factory Board – Recent Contract Wins 135

Table 53: BEML – Products 136

Table 54: BEML – Alliances 138

Table 55: Goa Shipyard Limited – Products and Services 140

Table 56: Goa Shipyard Limited – Alliances 141

Table 57: Goa Shipyard Limited – Recent Contract Wins 142

Table 58: Tata Advanced Systems Limited – Products 143

Table 59: Tata Advanced Systems Limited – Alliances 144

Table 60: Tata Advanced Systems Limited – Recent Contract Wins 145

Table 61: Mahindra Defense Systems – Products 146

Table 62: Mahindra Defense Systems – Alliances 147

List of Figures

Figure 1: Indian Defense Expenditure Including Pensions (INR Billion), 2014–2022 45

Figure 2: Indian Defense Expenditure Including Pensions (US$ Billion), 2014–2022 45

Figure 3: Indian Defense Expenditure Excluding Pensions (INR Billion), 2014–2023 47

Figure 4: Indian Defense Expenditure Excluding Pensions (US$ Billion), 2014–2023 47

Figure 5: Indian GDP Growth vs. Defense Expenditure as Percentage of GDP Growth, 2014–2023 50

Figure 6: Indian Defense Budget Split Between Capital and Revenue Expenditure (%), 2014–2023 52

Figure 7: Indian Capital Expenditure (INR Billion), 2014–2023 54

Figure 8: Indian Capital Expenditure (US$ Billion), 2014–2023 54

Figure 9: Indian Defense Budget Split (%), 2014–2023 55

Figure 10: Indian Defense Expenditure Allocation By Military Services – Split by Army, Navy, Air Force and Others (INR Billion), 2014–2023 57

Figure 11: Indian Defense Expenditure Allocation By Military Services – Split by Army, Navy, Air Force and Others (US$ Billion), 2014–2023 59

Figure 12: Indian Per Capita Defense Expenditure (US$), 2014–2023 60

Figure 13: Indian Homeland Security Budget (INR Billion), 2014–2023 63

Figure 14: Indian Homeland Security Budget (US$ Billion), 2014–2023 63

Figure 15: Terrorism Heat Map, 2018 66

Figure 16: Terrorism Index 69

Figure 17: Benchmarking with Key Markets – 2014–2018 vs. 2019–2023 71

Figure 18: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2018 and 2023 72

Figure 19: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2018 73

Figure 20: Land Based C4ISR Market Size (US$ Million), 2018–2023 75

Figure 21: Critical Infrastructure Protection (CIP) – Physical Security Market Size (US$ Million), 2018–2023 76

Figure 22: Multirole Aircraft Market Size (US$ Million), 2018–2023 78

Figure 23: Top Indian Defense Procurements in Terms of Their Supplier Relationships 80

Figure 24: Indian Defense Import Trend (US$ Million), 2013–2017 (TIV Values*) 81

Figure 25: Country-wise Break-up of Indian Defense Imports (%), 2013–2017 (TIV Values) 82

Figure 26: Weapon Category Break-up of Indian Defense Imports (%), 2013–2017 (TIV Values) 83

Figure 27: Indian Defense Export Trend (US$ Million), 2013–2017 (TIV Values) 84

Figure 28: Country-wise Break-up of Indian Defense Exports (%), 2013-2017 (TIV Values) 85

Figure 29: Weapon Category Break-up of Indian Defense Exports (%), 2013–2017 (TIV Values) 86

Figure 30: Industry Dynamics – Porter’s Five Forces Analysis 87

Figure 31: Bharat Electronics Limited – Revenue Trend Analysis (INR Billion), 2013–2017 130

Figure 32: Bharat Electronics Limited – Operating Profit Trend Analysis (INR Billion), 2013–2017 131

Figure 33: Bharat Electronics Limited – Net Profit Trend Analysis (INR Billion), 2013–2017 131

Figure 34: GDP Per Capita in US$, 2015–2025 149

Figure 35: GDP (Current US$ Billion), 2015–2025 150

Figure 36: Exports of Goods and Services (Current LCU Billion), 2005–2014 151

Figure 37: Imports of Goods and Services (Current LCU Billion), 2005–2014 152

Figure 38: Gross National Disposable Income (US$ Billion), 2005–2012 153

Figure 39: LCU per US$ (Period Average), 2015–2024 154

Figure 40: Market Capitalization of Listed Companies (US$ Billion), 2005–2012 155

Figure 41: Market Capitalization of Listed Companies (% of GDP), 2005–2012 156

Figure 42: Total Government Cash Surplus/Deficit as a Percentage of GDP (LCU), 2005–2012 157

Figure 43: Goods Exports as a Percentage of GDP, 2005–2014 158

Figure 44: Goods Imports as a Percentage of GDP, 2005–2014 159

Figure 45: Service Imports as a Percentage of GDP, 2005–2014 160

Figure 46: Services Exports as a Percentage of GDP, 2005–2014 161

Figure 47: Foreign Direct Investment, net (BoP, Current US$ Billion), 2005–2014 162

Figure 48: Net Foreign Direct Investment as a Percentage of GDP, 2005–2014 163

Figure 49: Mining, Manufacturing, Utilities Output (LCU Billion), 2005–2014 16