Defence Sector

Overview

Budget for defence: With a total expenditure of Rs. 5.25 lakh crore (US$ 66 billion) in 2022–23, or 13.31% of the overall budget, India is one of the largest defence spenders in the world.

By 2027, the Indian government wants to see 70% of its armament produced domestically. The potential contract value for the domestic sector over the next 5-7 years (2025-2027) is estimated by the defence ministry at Rs. 4 lakh crore (US$ 57.2 billion).

Potential for export: Within the next five years, India hopes to sell military equipment worth Rs. 35,000 crores (US$ 5 billion). In terms of top defence exporters globally as of 2019, India was placed 19th after shipping defence goods to 42 nations.

Important players: The government controls roughly 80% of the Indian defence market, making it the dominant force in the country. The Defence Research and Development Organisation (DRDO), the Ordnance Factory Board (OFB), and Hindustan Aeronautics Limited (HAL) are the principal public sector participants. With businesses like Tata Group, Mahindra Group, and L&T joining the market, the private sector is also taking on a larger role in the defence industry.

Recent News

India approves the acquisition of $8.5 billion in military hardware. The Defence Ministry announced in a statement that the DAC has authorised orders totalling 705 billion rupees ($8.52 billion) for all of its services. 114 fighter planes, 15 Sea Guardian drones, and 6 Apache assault helicopters are among the orders.

The United States and India will work together to build engines for the newest combat jets. India and the US governments have decided to work together to create engines for the next combat planes. The deal was made while US Secretary of Defence Lloyd Austin was in India. Other defence cooperation projects being worked on by the two nations include the creation of a new air-launched cruise missile.

In August 2023, India will get its first shipment of AK-203 rifles. The Indian Army will get the first batch of AK-203 rifles that India and Russia are jointly producing in August 2023. In Amethi, Uttar Pradesh, a factory will be used to make the weapons. A total of 7.5 lahks AK-203 rifles have been ordered by the Indian Army.

India will construct the first native aircraft carrier. The first indigenous aircraft carrier for the Indian Navy will soon be constructed. The ship, which will be known as INS Vikrant, is anticipated to be put into service in 2025. The Cochin Shipyard in Kerala will construct the carrier.

India will sell military equipment worth $5 billion in the next five years.

Key facts

• With more than 1.4 million members, the Indian Armed Forces are the fourth biggest in the world.
• With a fleet of more than 150 ships, the Indian Navy ranks as the sixth biggest navy in the world.
• With a fleet of more than 2,000 aircraft, the Indian Air Force ranks as the fourth biggest air force in the world.
• With over 70% of its defensive equipment coming from imports, India is a significant arms importer.
• India is a significant exporter of weapons, with over $1 billion in exports in 2021.

Opportunities

Rising demand for defence goods and services: The Indian defence industry is predicted to expand considerably over the next several years as a result of rising defence goods and service demand. The modernisation of the Indian Armed Forces, rising private sector involvement in the defence industry, and rising security threats to India are some of the causes driving this.

In recent years, the Indian government has placed a strong emphasis on indigenization in the defence industry. In addition to boosting the indigenous military sector, this is being done to lessen India's reliance on imports. By 2027, the government wants to have 70% of its defence manufacturing done on its own.

Growing private sector involvement: The private sector is becoming more involved in India's defence industry. These include the government's emphasis on indigenization, the rising demand for defence-related goods and services, and the expanding technical prowess of the private sector.

Challenges

Low degrees of independence: India still relies heavily on imports for its defence industry. The industry faces a significant challenge as a result of India's vulnerability to supply chain disruptions and the difficulty in meeting the government's goal of 70% self-reliance.

Outdated technology: The Indian defence industry continues to use a lot of this equipment. This is a significant obstacle for the industry since it makes it impossible to compete with other nations and satisfy India's security concerns.

Lack of investment: Over the past few years, the Indian defence industry has not gotten significant funding. This is a significant problem for the industry since it makes it harder to create new technologies and improve ones that already exist.

The Indian defence industry is also hampered by bureaucracy. This is a significant problem for the industry since it slows down the procurement process and makes it challenging to entice investment from the private sector.

Analysis

Revenue Growth: Based on this study, we can see that the defence industry's revenue has been consistently rising every year. Between 2020 and 2021, the growth rate was consistently 10%, and between 2021 and 2022, it was 5%. However, the expected rise in sales from 2022 to 2023 was 13%, which represented a considerable jump in growth.

Operating Profit Growth: The defence industry's operating profit has consistently increased throughout the years. From 2020 to 2021, there was a constant growth rate of 10%. However, the growth rate was greater from 2021 to 2022, at 13.6%, and is expected to be somewhat lower from 2022 to 2023, at 12%.

In conclusion, India's defence industry has consistently increased operating profit and sales throughout the years. The sector's revenue growth rate has been rising, and 2023 is expected to see a large increase. Additionally, operational profit growth has remained consistent, with a greater growth rate seen in 2022 and a little lower growth rate anticipated for 2023.

Overall, the long-term outlook for India's defence industry is highly promising. In the upcoming years, the industry is anticipated to have rapid growth, thanks to a variety of causes. The Indian defence industry is anticipated to expand at a CAGR of 12–15%. The rising demand for defensive goods and services, the government's emphasis on indigenization, and the expanding involvement of the private sector will all contribute to this expansion.

ROSHAN PATEL

Disclaimer:

The following Report is intended for informational purposes only and should not be construed as financial advice or investment recommendations. It is important to conduct thorough research and consult with a qualified financial advisor or professional before making any investment decisions.