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Arms spending: India grows as west shrinks
NEW DELHI, JUN 17 (AGENCIES):
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Published on 17 Jun. 2010 11:45 PM IST
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India’s military modernisation presents opportunities for defence majors.
With global arms majors focused on the commercial opportunities presented by India’s military modernisation programme, consulting firm Deloitte India and the Confederation of Indian Industry (CII) have produced a detailed report on the country’s defence market and the possibilities it presents, stated Business Standard.
Entitled, “Prospects for Global Defence Export Industry in Indian Defence Market”, the report was released today at the Eurosatory 2010 defence exhibition in Paris. The report follows a KPMG-CII report in January on “Opportunities in the Indian Defence Sector”, a PricewaterhouseCoopers report in April on “Aerospace and Defence Insights” and a CII report last month on foreign direct investment (FDI) in the defence sector.
The Deloitte-CII report points out that as defence expenditure drops in the traditionally big-spending western economies, including the USA, Indian defence spending will grow steadily over the next 20-25 years, as New Delhi implements a major defence modernisation.
KEY IAF PROJECTS:
* 180 Sukhoi-30MKI (pictured) fighters, worth $9.9 billion.
* 126 medium fighters (to replace the MiG-21) for $9.09 billion.
* 120 indigenous Tejas light combat aircraft (LCA), for which an additional $1.71 billion has been allotted.
* Advanced and intermediate jet trainer aircraft.
* The Indo-Russian Fifth Generation Fighter, with an estimated development cost of $9.9 billion.
* Upgrades to more than 60 MiG, Jaguar and Mirage aircraft.
Linking defence spending to the International Monetary Fund (IMF) prediction that India’s economy will grow in real terms by 7.5 per cent from 2010 to 2014, the Deloitte-CII report says that India’s current defence expenditure of $32.03 billion will rise to an estimated $42 billion by 2015. The capital expenditure on new weapons platforms will rise from the current $13.04 billion to $19.2 billion in 2015.
Inflation, warns the report, somewhat tempers these figures: the real growth in defence expenditure is expected to be marginal over the next two years and about 5.3 per cent from 2012 to 2015. Nevertheless, the figures remain impressive. During the current Five Year Plan (2007-12), India will spend $100 billion on weaponry, which will rise to $120 billion during the next Five Year Plan (2012-17).
Deloitte-CII point out that 70 per cent of this procurement, in value terms, is from foreign sources; Indian companies supply only 30 per cent, the bulk of that as components and sub-assemblies to state-owned companies. The report is sceptical about the Indian MoD’s (Ministry of Defence’s) oft-repeated target of 70 per cent indigenous production. If that target is to be achieved by 2015, local industry would need to more than double in size, an unlikely event.
India’s domestic defence sector benefits from increasing MoD requirements to “buy local” as well as taxation arrangements that advantage local firms; in the case of defence public sector undertakings (DPSUs), tax advantages can be as high as 50 per cent. Deloitte-CII, however, see clear opportunities for foreign firms in providing specialist inputs to Indian defence manufacturers, which they require for developing advanced platforms and systems.

 
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