India will see major investments in several industries which include aircraft maintenance, repair and overhaul (MRO), avionics and radars, software and engineering design services, and electronic warfare systems as foreign companies eye a share in the billions of dollars worth domestic defense market, consultancy and advisory services firm KPMG said in a report.
The world’s third-largest military spender and the second-largest importer of defense equipment, India, currently imports 70% of its arms. Though, there hasn’t been any sizable M&A (mergers and acquisitions) in the defense space, more green field ventures by foreign multinationals with local partners are expected in future with the government recently increasing automatic FDI (foreign direct investment) in this space to 74% from existing 49%.
Chances of such green field ventures are further boosted by the fact that the Indian government has also laid out an ambitious target in the draft Defense Production and Export Promotion Policy to double the domestic procurement from the current $9.5 billion to $18.7 billion by 2025.
“Foreign companies say they are watching to see what deals are made before making investments,“ said Gaurav Mehndiratta, Partner and Leader, Aerospace and Defense, at KPMG in India.
“Already deal activity is picking up a little among medium-sized Tier I and II suppliers and this segment is where we expect the money to flow in the next 2 to 3 years,” he added.
Meanwhile, Indian OEMs (original equipment manufacturers) have also been eyeing niche defense technologies. Recently, the Tata Group acquired the IP rights for a German-origin platform to make an ‘indigenous military aircraft’.
“Some OEMs’ tier I suppliers already have technology centers that design such things as aero engines, but the largest opportunity would be if the entire supply chain for a particular product were to move to India,” said Mehndiratta.
“That would be the biggest game changer. By contrast, the biggest risk would be to sit on the sidelines and not make an investment,“ he added.
According to KPMG, primary multinational defense and aerospace contractors such as Lockheed Martin, Boeing, MBDA, Thales, and Dassault, already have joint ventures in India and may be expected to raise their stakes at some point in future as the government targets a spending of $223 billion on armaments for land, sea and air in the next 10 years.
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