Aero India, February 2013

Foreword p2/Opportunities and challenges p6/Tax and regulatory framework p22/ Building a domestic aerospace industrial base p28

Indian aviation: Spreading its wings

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Foreword
The year 2012 marked a decade of full-fledged entry of the private sector in defence production with 100% equity and 26% foreign direct investment. The decade also witnessed India emerge as one of the most attractive defence markets and an even more lucrative aerospace market in the world with a steady increase in the Ministry of Defences budget for modernisation of the armed forces. Besides, the size of the defence market in India, the governments defence budget, the 30% offset clause, the Defence Production Policy espousing indigenisation and self-reliance these avenues seem promising for the private defence industry as well. However, the lack of level playing field for the private sector vis-avis the DPSUs and the foreign original equipment manufacturers (OEMs) continue to be a dampener on the enthusiasm and efforts of the private sector to be able to contribute meaningfully to the Indian growth story. India at this juncture is uniquely equipped to create a vibrant defence manufacturing base in the country with the right utilisation of its budget and modernisation spree. Yet we are losing the battle even before it has started. The Defence Offset Policy announced last year lists fostering development of internationally competitive enterprises, augmenting capacity for research, design and development related to defence products and services and encouraging development of synergistic sectors such as civil aerospace and internal security. FICCI has welcomed the intent of these objectives creating a manufacturing base and augmenting R&D related to defence products and services. However, it will be desirable to have an offset policy which has creating capability and value addition as its corner-stones. One cannot over emphasise the importance of self-reliance in defence production in the strategic interest of the nation. Here it is also coupled with the fact that the defence and aerospace industry can act as a force multiplier for the economy given Indias capability in frugal engineering together with jobs and export opportunities like it has happened in the auto and IT sector. Also, since defence is a tiered industry, the MSME sector can get a huge impetus through a strong defence industry set up. This will also build national defence capability followed with integration of the Indian industry in the global supply chain of spares and sub-systems followed by platform integration. In due course, India can emerge as an outsourcing hub for global defence players. This sums up our vision for the defence and aerospace manufacturing in India, which the FICCI Defence Committee has been taking forward with the Ministry of Defence We would like to thank our knowledge partners - PwC for their support and hard work in making this report.

Dr A Didar Singh Secretary General FICCI

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