Indian Defence & Security Market

by : Harsh Mohan Puri Austrade & Col. K.V. Kuber Aviotech Pvt. Ltd.

Agenda
India - Geo-Economic Background Indian Defence
Overview Expenditure Expenditure Distribution Equipment Modernization

Indian Security
Overview

Indian Procurement - Historic v/s Present Indian Defence Procurement Procedures Aviotech - Col. K.V. Kuber Trends impacting segment - D&S

Agenda
Demand Side Dynamics
Defence Security

Supply Side Dynamics - D&S SEZs in India

Indian Governments mandate

Creating an Ecosystem.
Andhra Pradesh - History of excellence Viswakarma - Envisaged Capability Viswakarma - A dream to reality

About Aviotech Aviotech Group Co. - Deccan Chronicle : Presence across emerging sectors

Agenda
How Austrade & Aviotech can assist in India? Example of Definition of market Expectations from Australian Companies Opportunity - Offset related Opportunity - Non-Offset related Other Opportunities.

Challenges.
Events in the market Austrade Network in India Contact point.

India - Geo-Economic Background

Economic reforms leading to very rapid economic growth
Defense spending as a percentage of GDP decreasing, but increasing substantially in real terms End of Cold War Transformed relationship with USA, Japan, ASEAN Greater domestic interaction Growing economic links Emerging new international/security relationship South Asia Internal security issues Maoist.. External threats terrorism.26/11, nuclear proliferation Borders with China, Pakistan, Bangladesh, Burma, Bhutan & Nepal Maritime security

Indian Defence - Overview

Annual growth : 9.3 %

Expected spend by 2015 : U$42 billion
Army Navy Airforce Misc. : U$11.76 billion : U$10.5 billion : U$16.8 billion : U$2.94 billion

Major Threat areas

Land Border, Maritime Security, Island Security & Exclusive Economic Zone

Procurement : Ministry of Defence, Government of India

Key focus : External Threats, Internal Threats, Disaster Response & Peace Keeping Operations Procurement for Army, Navy and Air Force

Core Programmes
Modernization of Radar capability Modernization of Army, Navy & Air Force Communication Technology Battlefield Management Systems F-INSAS (Future Infantry Soldier as a System)

Indian Defence - Expenditure

The Global defence expenditure is currently estimated to be worth more than $1.465 Trillion. USA is the single largest defence spender at $ 607 billion, which is equivalent to 40% of the world expenditure. Indias share is $30 billion which is 2.1% of world defence spending.

Indias Defence Expenditure

Indias defence expenditure is expected to be U$42 billion by 2015. Indias expenditure has been growing since 2001. The current years spending has placed India amongst the top 10 spenders worldwide. Indias growth rate in expenditure on defence is roughly 9.3%, which is amongst the top three in the world.
2010 Defense Expenditure - for top 10 countries
Saudi Arabia 4% Italy India Japan 4% 2% 4% Germany 4% Russia 5% United Kingdom 6% France 6% China 9% United States 56%

Defense Expenditure - India (Rs. in billion) 1050 860 770 500 540 560 600 820 930

1420

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
World Spending $1464 billion, India spending $30 billion

Indian Defence - Expenditure Distribution

Total Defence Expenditure Distribution - India : Army, Navy, Air Force : U$ 100 billion (2010-15)
Army : 46%; Air Force : 30%; Navy : 19% and Others : 6%
Others 6% Air Force 29%

Army 46% Navy 19%

Total Capital Expenditure Distribution - India : U$42 billion (2010-15)

Army : 28%; Air Force : 40%; Navy : 25% and Others : 7%
Others 7% Army 28% Air Force 40%

Navy 25%

Indian Defence - Equipment Modernization

Profile of Equipments The current profile of equipment held by the Indian Armed Forces with regards to State of the Art, Matured and Obsolescent equipment is 15%, 35% and 50% respectively. The required/target profile with regards to State of the Art, Matured and Obsolescent equipment is 30%, 40% and 30% respectively.

Current profile of equipments in 2010

State of the Art 15%

Target profile of equipments by 2020

State of the Art 30% Obsolescent 30% Obsolescent 50% Matured 35% Matured 40%

Indian Security - Overview

Annual growth : 16% Expected spend by 2015 : U$9.7 billion
Coast Guard Maritime Security Airport Security Sea Port Security Others : U$4.5 billion : U$1 billion : U$3.2 billion : U$0.5 billion : U$0.5 billion

Major Threat areas

Border, Airport, Critical infrastructure, Maritime, Mass Transit Systems & Corporate

Procurement : Ministry of Home Affairs, Government of India

Key focus : Militancy, Policing & Disaster Response and support State Governments Procurement for Border Management, Paramilitary Forces & NIA

Core Programmes
Para-Military Modernization & Augmentation Coastal Security (Fast interceptor Boats) MPF Modernization of Police Forces Border Management Airport Security : Development of airport infrastructure Anti Terrorism and Counter Intelligence Training

Indian Procurement - Historic v/s Present

Self-reliance v/s Partnerships & Alliances
Minimal role for Private Sector

Indigenous v/s Licensed production

Re-inventing the wheel Post acquisition impediments to technology absorption

Emphasis on domestic production v/s flexible Off-set policy

License production by state controlled PSUs Building on domestic R&D and production DRDO

Regional standards v/s Global

high expectations for indigenous products rarely achieved

Contracting difficulties
inability to spend procurement funds in a timely manner

Indian Defence Procurement Procedures

1. 2. 3. 4. 5. Buy Global Buy and Make Buy and Make Indian Buy Indian Make

Aviotech - Col. K.V. Kuber

28 years in the Indian Army, Communications and Electronics Warfare specialist, commanded an EW Battalion in operations, widely experienced in the Indian Army. Presented a paper in CMC, Albuquerque, USA, in July 2000. Three and half years in Ministry of Defence as Director - Capital Acquisition Programmes Was chosen to be charged with Additional responsibility of Director DOFA Implemented 23 programs with offsets through the complete acquisition process Oversaw more than 300 capital acquisition programs of all three services Well versed with Defence Procurement Procedures Attended International course on Foreign Mil Sales concerning USA DoD procurements Founded the DOFA in the Ministry in 2006 and part of offset policy formulation since 2005 Founded the Religare Strategic Advisory in corporate and led a team there successfully Founded the Aviotech Strategic Advisory and put together a strong team here. Advisor on the Defence Committee of Confederation of Indian Industry (CII), FICCI, Assocham. Advisor on Offsets with Indo Russian Chambers of Commerce, Indo- American Chambers of Commerce, American Chambers of Commerce(AMCHAM), Electronic Industries Association of India (ELCINA), Society of Indian Aerospace technologies and Industries(SIATI) Advise a number of OEMs and Indian Industry on Defence procedures and Offsets

Trends impacting segment D&S

Trend 1 : Emergence of a tiered manufacturing structure
Traditionally DPSUs were playing the roles of primes but with significant in-house production capability spread across the entire production process and little outsourcing beyond component level supplies As a result they were managing thousands of vendors as suppliers, each with component level capability and very little tiering throughout the supply chain. For example OFB has 8000+ vendors and HAL has 2500+ vendors. Globally A&D primes have reduced the number of suppliers and are increasingly having more risk sharing partners. Indian A&D Segment too is seeing tiering emerging in the A&D supply chains and mid chain players with composite capabilities emerging.

DPSU

DPSU

Global Example of Supplier Reduction : Embraer

Risk Sharing Partners Other Partners

4 Risk Sharing partners out of 350

16 Risk Sharing partners out of 38

Traditional DPSU supply chain involving thousands of partners each operating at component level capability

Emergence of layers of mid-chain players with increasing outsourcing by DPSU thereby leading to a leaner DPSU in terms of manufacturing capability

EMB 145

Phenom

1990s

2007

Trends impacting segment D&S

Trend 2 : Competitive Advantage coming into play
As A&D supply chains globalise, there is a gradual shift of work to locations that have the maximum competitive advantage in terms of cost. Offsets are providing Indian A&D manufacturers / suppliers opportunities to integrate into the global A&D supply chains. In view of the above, there are some segments that are booming / expected to boom. Some prominent examples are Engineering Design, Composites (Hand layered : work shifting from EU and US) and Surface Treatment (work shifting out from EU) Engineering Design Movement on account of economic cost advantage Surface Treatment Movement on account of easier environmental regulation Composites Movement on account of economic cost advantage

Trends impacting segment D&S

Trend 3 : Increasing De-regulation and De-licensing
A&D manufacturing in India has traditionally been license oriented with a large number of bureaucratic hurdles for manufacturers entering this space. Post 2008, a large number of these hurdles for component/assembly level manufacturers have been removed. Licensing still remains necessary for platform manufacturers.

Trend 4 : Efforts towards evolving a public-private-partnership model for strategic projects

The Government has, since 2005, tried to evolve a model of public private partnership for new projects. Under the approach, there is shared ownership of key projects between private sector, services, DPSUs and the DRDO. Key successes of this model is the Pinaka Multi Barrel Rocket Launcher and the work done by L&T on the nuclear submarine.

Trend 5 : Increased transparency in capital acquisition

The government has tried to increase transparency in the defence acquisition process by making the process timebound. The government has also initiated steps towards planned and structured disclosures on capital acquisition programmes through RFI/RFP releases.

Demand Side Dynamics - Defence

Export Demand
Direct Exports
Very few business segments that can command world market demand on the basis of inherent competitiveness Strong linkage to India as a export base for automotive components.

Domestic Demand
Consumption within India
DPSU/PSU/OFB Driven Demand
Very large and Significant demand arising from DPSU driven Make manufacturing Total programmes Existing base of over 10000+ USD suppliers spread across HAL, BEL, OFB and BHEL Market size estimated : USD 18-20 Bn. over the next 5 years Services Driven Demand Private sector Driven Demand

Offset Driven Exports

Focus area driven by offset obligation on OEMs. Rapid expansion of segments that are being leveraged for offset linked manufacturing

Existing Areas of Strength : IT/ITES/Engineering Design Services Existing Areas of Strength : Total Market Potential Upcoming Areas of potential : IT/ITES/Engineering Design Estimate Precision Machining, Services Fabrication, Composite Upcoming Areas of potential structures, Castings, Surface : Simple composite USD 14 18 Bn. over the next Treatment, Fasteners, structures, forgings and Electronics, Avionics stampings 8 years (Component level), Electrical equipment, Fasteners, Market potential estimated : Harnesses and Cable USD 2-3 Bn. over the next 8 assemblies years Market potential estimated : USD 12-15 Bn. over next 8 yrs Typical Player profile HAL - Airborne Platforms Typical Player profile OFB Small arms Elaborated in later slides Bharat Forge

Private players Army base emerging both as workshops, Naval primes as well as tier Dockyards, Air 1/ tier 2s force Base Repair Stations Significant additions contribute to Market Potential are JVs between minor demand Indian and Global Estimate players which have Limited supplier been created to base with limited address A&D 22 26 Bn. over the capability manufacturing needs in India next 5 years Market size estimated : USD Typical player profile 0.8-1 Bn. over the includes JVs of Tata, next 5 years Mahindra, L&T etc and private players like L&T, PEL, Alpha Design etc. Market size estimated : USD 3-5 Bn. over the next 5 years

Supply Side Dynamics - D&S

Indias strategic manufacturing spread
Upcoming Aerospace clusters Naval Manufacturing clusters Upcoming and existing NSG hubs HAL factory clusters BHEL Factory clusters BEL Factories OFB Factories

24,500 private sector A&D / HLS channel partners

SEZs in India - Indian Governments mandate..

Quote The EEPC for this initiative is being supported by Religare Strategic Advisory which has also requested Col. K.V. Kuber (Retd.), Head of Defence Initiatives, M/s. Aviotech Private Limited, to support the initiative through a focussed study/ outreach programme. We request you to support this initiative of the Government of India by granting appropriate time and audience to the team from M/s. Aviotech to come and present to you the significant opportunities offered by India as a global manufacturing hub during their visit to Australia and USA in November and December 2010. EEPC INDIA, Ministry of Commerce, Government of India

SEZs in India - Creating an Ecosystem.

Viswakarma Technopolis

A Sri Kubera Infracon Initiative

Andhra Pradesh - History of excellence

Key Industries of the state
Ship Building Fertilizers Hi-precision Machine Tools Drugs and Pharma Cement Paper Power Gen Equipment Electronic Hardware Long Range Missiles Castings and Forgings Defence Electronics Ceramics Etc..

Natural Endowments 5th largest state in India, in terms of area. 2nd largest store house of mineral resources in India. 2nd longest coastline : 970 kms Rs.1.8 Bn marine exports. Significant Natural Gas resources ( Over 30 TCF KG Basin) Industrial Strength Leadership across India Agro-based industries Cement and Granite Paper. Bulk Drug Capital & Biotech Diversified industrial base Globally recognized and fastest growing base for IT enabled services, exports up to $ 1 billion. People Strength Large pool of skilled workforce with 26 Universities turning out 95,000 Engineers / year, 110 Polytechnics, 600 it is. Proactive Governance : first to have a comprehensive Single Window Clearance Act in place. Consistent governance to promote industry Intent to develop AP into a global industrial powerhouse

Viswakarma - Envisaged Capability

A unique manufacturing cluster with multi-capability site A one-stop-shop solution for all Strategic industry manufacturing needs
Industries Served
Forgings Castings Surface Treatment

Aerospace

Defence

Fabrication Sheet Metal work

Metallics and Metallics processing Technologies

Composites processing Technolgies

Composite Structures Composite layering Precision Machining

Marine - Naval

Precision Machining

Nuclear
Testing And Quality Control

Support Environment
Engineering Design Centres Rapid Prototyping Centres Logistics hubs

Homeland Security

Structures I Electrical Systems I Hydraulics I Control Surfaces I Precision Engineered Components I Electronics I

Viswakarma - A dream to reality

State Participation : APIICs participation in the Manufacturing Park
Incentives for industry to participate in the manufacturing park :

Designated duty free enclave and to be treated as foreign territory for trade operations and duties and tariffs. Licence exemption required for import. Exemption from customs duty on import of capital goods, raw materials,consumables, spares etc. Exemption from Central Excise duty on procurement of capital goods, raw materials, consumable spares etc. from the domestic market. Reimbursement of Central Sales Tax paid on domestic purchases. 100% income tax exemption for a block of five years and 50% tax exemeptions for five year there after under section 10-A of Income tax Act. Reimbursement of duty paid on furnace oil, procured from domestic oil companies Units may be for manufacturing, trading or service activity. 100% Foreign Direct Investment in manufacturing, sector allowed through automatic route barring a few sectors. Facility to retain 100% foreign exchange receipts in EEFC Account. Facility to realize and repatriate export proceeds within 12 months. Re-export imported goods found defective, goods imported from foreign suppliers on loan basis etc. without G.R. Waiver under intimation to the Development Commissioner.

Viswakarma - A dream to reality

State Participation : APIICs participation in the Manufacturing Park Incentives for industry to participate in the manufacturing park

No cap on foreign investment for SSI reserved items. Exemption from industrial licensing requirement for items reserved for SSI sector. Full freedom for subcontracting including subcontracting abroad. Duty free goods to be utilized in 5 years. Job work on behalf of domestic exporters for direct export allowed. No routine examination by Customs of export and import cargo. Support services like banking, post office clearing agents etc. provided in Zone Complex. Exemption from Custom/Excise Duty on goods for setting up units in the zone.

About Aviotech
A U$ 3 Billion group set up for Aerospace and Defence based out of Hyderabad Create niche capabilities in Aerospace Manufacturing processes Fully owned by Directors of Deccan Chronicle Holdings Hosts three companies within the group, Airline Business, MRO for Business jets, Defence Manufacturing and Defence Research & Development A young and vibrant culture that thrives on initiative and innovation. Strong promoter backing Huge investments committed for growth of Indian Defence Industry

Aviotech Group Co. - Deccan Chronicle Presence across emerging sectors

Deccan Chronicle Holdings

Media
Worlds Ninth largest English Daily in circulation Deccan Chronicle. International presence, owners of Asian Age (London). Publisher of The New York Times and International Herald Tribune in India.

Financial Services
Sound partnership for VC funding opportunities.

Retail
One of the Indias Exquisite retail houses Odyssey along with other high end products, such as writing instruments with Editions and Jaguar Land Rover cars with In Line 4 Motors.

IT
Two IT companies as part of the parent group Siger Solutions and Network Technologies.

Aviation & Travel

Aviotech - non scheduled corporate Jet operator planned to be largest in India. MRO for Business Jets. GSA for Air Lanka. India Travel Bureau.

Aerospace & Defence

Aviotech Defence Advisory Servicing aerospace, defence and homeland security segments ; Unique model with complete Advisory services

Group Vision To Build Aviotech as a Global Trusted Brand in the Composites Domain in Composites Manufacturing with sound Research and Development initiatives and Present it as the Global Leaders in Composites Technology

How Austrade & Aviotech can assist in India?

Market entry Market scoping for opportunities in Defence & Security space Market intelligence on specific opportunities Partner Identification and Support Identification of partners (Representation/ JV/ M&A / Licenced Manufacture / Sourcing) Developing Supply chain solutions Operations Support Facilities planning and establishment including participation in SEZs / Industrial parks Support for vendor and supply chain financing Regulatory compliance and control Offset Advisory Offset project planning and process compliance Offset project monitoring and management Offset documentation and process control Negotiation support for offset projects

Example of Definition of market

SERVICES Optics

Contract Manufacturing Design Maintenance QA

Indicative Examples.
Seekers Aerostats and Components Radars and Components Sonars and Components Surveillence Cameras Satellite Based Electronics Ground based sensors Vehicle mounted electronics Radio and Communication Electronics

Communication

Strategic Electronics

Robotics & Mechatronics

Hydraulics

Mechanics

Seeker

Battlefield Transparancy

Shooter

Battlefield Transparancy
UAV components Communication Electronics Command and Control Electronics

Shooters
On-board electronics Fire Control Systems Aircraft electronics

Expectations from Australian Companies.

1) Market Understand the market

2) Opportunity Assess/ Create the opportunity

3) Engage Engage with the stake holders/ Generate interest 4) Educate Educate customer/ channel partner 5) Market Access Identify market approach Own set up / import Joint venture with Local Partner

Opportunity - Offset related

Cost (U$ Billion) 10 Offset (U$ Billion) 5

S. No. 1

Program MMRCA

Participants Boeing, LM, Saab, EADS, Dassault, MiG Eurocopter, Augusta Westland, Kamov

MRH

0.9

Towed Howitzer Wheeled Gun

1.8

0.6

BAE Land Systems, ST Kinectics Kerrametal, Rheinmetal

0.3

Opportunity - Non-Offset related

S. No. 1 Program F-INSAS Description Transform the modern day soldier into a mobile, lethal and yet light fighting unit. Electronic Components Hand held, Ruggedized computer, Power Packs, Sensors (NBC), Data Links, Com Links BMS Make the brigade Commanders and above Data Links, Com Links, fully aware of the Battlefield situation in realDesktop Ruggedized time and also enable them to provide strategic Computers inputs to the fighting units. Coastal After 26/11, entire coastline of the country is Radars, Scanners, Security going to be put under constant surveillance. Proximity Alarms POLNET/ All the police stations in the country will be Computers, Data Links, CCTNS connected via a dedicated and secure Bio-Metric Scanners, etc. network for sharing data. All data on criminals will be stored on a central server and this can be accessed at all times by police stations across the country.

3 4

Other Opportunities.
Communication Devices Security Systems Coastal Security (Radar Sensors, etc) Surveillance equipment, Night Scanners Electronic Warfare Access Control Explosives & IED Detection and disposal systems Fast Patrol Boats Interceptor Boats Data collection tools Integrated disaster management systems Intruder detection in multiple environments Personal Protection Gear Intelligent Transport Tracking System Component Manufacturing (Precision machining, Metallurgy, Forgings, etc) CCTNS (Crime & Criminal Tracking Network & Systems) Training

Challenges.
Slow procurement procedures
Effective local partnerships Focus on developing local industry ambitious acquisition program Dependence on manpower intensive measures Multiple agencies

Events in the market

Name : Aero India 2011
Date : 9-13 Feb. 2011 City : Bangalore Target Segment : Aerospace, Defence & Homeland Security Website : www.aeroindia.com

Name : INDESEC 2011

Date : 20 - 22 June, 2011 City : New Delhi Target Segment : Defence & Homeland Security Website : www.indesec-expo.com

Austrade network in India

Chandigarh
Delhi Jaipur Ahmedabad Kolkatta Mumbai Pune Hyderabad

The most extensive network of any country in India with 11 offices

Major office in New Dehli, Mumbai and Chennai

Presence in Hyderabad, Bangalore and Kolkata, Recently established offices in Jaipur, Chandigarh, Ahmedabad, Pune and Kochi

Bangalore

Chennai

Kochi

Contact point.

Aviotech
Col. K.V. Kuber, Head Defence Initiatives Mobile : +91 7838460333; +91 9999027070 Email : col.kuber@aviotech.com; col.kuber@gmail.com

Austrade
Harsh Mohan Puri, Business Development Manager Mobile : +91 9958445815 Email : harsh.puri@austrade.gov.au

Thank you!