The sector witnessed significant activity both in terms of policy implementation and deals between global and national players
The aerospace and defence manufacturing abilities of a nation are often considered a yardstick to evaluate its industrial and technological prowess. The reason for this is that a high level of scientific and engineering expertise, years of research and development and hefty resources are required to manufacture aircrafts and their components. Unlike components in, say, automotive manufacturing, those in aerospace and defence manufacturing need to conform to the highest standards of quality as there is no room for error. In light of this, we need to ask ourselves, how is India faring?
The year 2017 has been an eventful one for India’s aerospace and defense sector. The sector witnessed significant activity both in terms of policy implementation and deals between global and national players. However, there is a long way to go before India can deem itself at par with other nations.
It would be a drawn out task to list each and every recent development in the sector as there have been quite a few. However, we can limit ourselves to three significant themes which will have a major impact on India’s aerospace and defence manufacturing capabilities. The first among these is the defence offset policy and the issues surrounding it. The second is the role of governments, both at the union and state levels, towards nurturing India’s nascent aerospace manufacturing sector. The third is the relatively slower advent of India’s commercial aerospace manufacturing sector.
India’s defence offset policy had initially triggered interest among domestic players to enter the aerospace market, but volumes were low. After years of negotiation, it appears to have borne fruit, with Dassault committing to invest over 100 million Euros in India as part of fulfilling its offset obligations under the Rafale deal. While the Hindustan Aeronautics Limited (HAL) and its suppliers have been domestically producing aerospace components and aircrafts for a while now, it is yet to emulate the same levels of capacity that developed nations possess. It is imperative to close this gap as early as possible given the fact that India seeks to reduce dependency on imported defence equipment. To accomplish this, the offset policy needs to shift focus from merely the value of the offset contract to the outcome India desires. This would require the offset to be in those specific areas relating to skill, technology or product where India requires support.
The union and state governments too have a vital role to play in nurturing India’s nascent aerospace manufacturing sector. With Karnataka developing an aerospace policy a few years ago and Telangana being home to the country’s first public SEZ for aerospace manufacturing, the environment is finally becoming conducive for new entrants to come into the aerospace manufacturing ecosystem. While these are welcome steps by state governments, the union government too needs to take proactive measures to improve the ease-of-doing-business and facilitate smoother access to capital. Unlike in western countries, there are very few incentives in place in India to support players in the aerospace and defence manufacturing industry. The large amount of investment required and the long project life cycles deter players from entering this vital sector.
Another factor which merits attention is the relatively slow growth of the commercial aerospace manufacturing sector in India.Its growth is important for the development of a complete aerospace ecosystem in India.Automotive ecosystems have successfully been created in India in places such as Gurgaon and Chennai, with ancillary hubs around large car plants. This way they could have easier access to talent and build cost-efficiencies. A similar ecosystem mentality is yet to be seen in aerospace manufacturing.
India’s policy regime has witnessed reforms that aid aerospace and defence manufacturing. The players in the sector should not depend entirely on offsets and take proactive steps to nurture and encourage the building of an ecosystem in India. With the right incentives, more players can enter the sector, building vibrant clusters and aiding the country in its path to self-sufficiency.