If the government's push to locally manufacture defence equipments fructifies, the sector can fetch close to USD 17 billion from exports, while it can grow seven times to USD 41 billion by FY22, says a report. India is the world's largest importer of defence equipments with tens of billions of dollars in annual purchases of critical equipment for the armed forces. Recently, the government had increased FDI in the sector to 49 per cent and last week Prime Minister Narendra Modi had said that MNCs could go in for majority ownership, provided they transfer the technology.
The report, written by Sandeep Upadhyay, Senior Vice President at Centrum Group, which was the first domestic investment bank to offer defence sector advisory services in 2011, further said that of the USD 41 billion market, 60 per cent will be domestic demand and 40 per cent will come from exports. He also projected USD 620 billion defence budget between FY14 and FY22, of which 50 per cent would be on capex.
On the total defence budget, Upadhyay said the cumulative defence spend between FY14 and FY22 may touch around USD 620 billion and capex will be half of it while the spend on new armament could be around USD 251 billion with imported equipment spend at USD 146 billion.
The report also foresees that opportunity for domestic companies from arms acquisitions would grow from USD 4 billion in FY14 to USD 24 billion in FY22, growing at 23 per cent per annum during the period, as half of the defence equipment is obsolete now. Meanwhile, media reports said Nikhil Gandhi-promoted Pipavav Defence is up for sale and Mahindra and Munjals of Hero MotorCorp are keen on the company.
When asked about the evolving scenario in defence sector, investment banker Mahesh Singhi of Singhi Advisors said only those firms with good credibility can thrive in this sector, which is also a must for government support.