VIBRANT GUJARAT
GUJARAT:
EMERGING BASE FOR INDIGENIZATION OF THE INDIAN
DEFENCE INDUSTRY DEFENCE OFFSET SECTOR PROFILE
1
Table of Contents
1.
India–Preferred Investment Destination
2.
Defence Spending & Offsets : Global Scenario
3.
Defence Spending & Offsets : Indian Scenario
4.
Defence Offsets : Overview
5.
Advantage Gujarat : Emerging Offset Destination
6.
Gujarat : Manufacturing & Engineering Hub
7.
Gujarat : MSME Scenario
8.
Annexures
Defence Spending Global Scenario
Global Defence expenditure is on an upward trend and stands at over USD 1.7 trillion at current prices for 201
registering an increase of 45 percent since 2002
World military expenditure in 2012 totaled USD 1753 billion,
around 2.5% of world GDP
More than 4/5th of all military expenditure in 2012 was
made by 15 countries
World Defence Spending (USD billion)
2000
1500
1000
1605
1468 1525
1420
1289 1352
1711 1739 1741 1735 1753
500
0
% share in Global Defence Spending
USA % share in Global Defence Spending
China
USA
Russia
UKChina
1%
18%
Japan
1%
1%
18%
France
Russia
39%
Saudi Arabia 1%2%
2%2%
UK
39%
India
2%
2%
Germany
2%
2%
Japan
Italy
2%
3%
Brazil
3%3%
France
South Korea 3%
3%
Australia
3%
Saudi
10% 10%
Canada
5% 5%
Arabia
3% 3%
3%
3%
Turkey
India
4% 4%
Others
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
800
600
400
200
0
682
Source: Stockholm International Peace Research Institute (SIPRI)
165 90.7
60.8 59.3 58.9 56.7
48.3 45.8
34
Defence Offsets Global Scenario: 2021
Offset revenue of top 20 countries to be around USD 424.57 billion by 2021
APAC countries will register the highest growth in terms of CAGR in military offset market
Saudi Arabia will have highest military offset revenue between 2012-2021 : ~ USD 62.63 billion
Offset market share- 2012
2.40%
4.10%
3.60%
7%
3%
2.90%
2.90%
14.40%
3.50%
4.90%
4.30%
3.50%
1.90%
6.40%
9.40%
12.10%
2.60%
2.10%
7.20% 2.10%
Germany
Greece
Italy
Netherlands
Norway
Poland
Turkey
UK
South Africa
Australia
India
Indonesia
South Korea
Singapore
Taiwan
Brazil
Chile
Colombia
Saudi Arabia
UAE
Offset market share- 2021
2.10%
2.70%
2.40%
2.60%
2.80%
3.60%
7.50%
3.50%
14.80%
3.80%
1.90%
5%
6.40%
3.40%
9.70%
2.90%
11.50%
8.20%
2.30%
2.90%
4
Source: Frost & Sullivan
Defence Offsets Global Market Size
India, Saudi Arabia & Brazil will be among the largest global defence offset markets and provide
enormous opportunities for growth
Saudi Arabia
2
India
3
4
High
( 5-9% )
Brazil
South Korea
5
UAE
12
Chile
6
Australia
13
Norway
7
Colombia
14
Italy
8
Poland
15
Taiwan
Opportunities for Growth
1
9
UK
16
15
Netherlands
10
Turkey
17
Indonesia
11
Chile
18
Singapore
Source: Frost & Sullivan
17
4
8
15
18
Medium
( 0-4% )
Low
( < 0% )
15
13
11
14
Low
( 0-20 billion)
2
5
10
7
6
1
3
9
12
Medium
( 20-40 billion)
High
( > 40 billion)
Market Size
5
Defence Spending & Offsets : Indian Scenario
6
Organizational Structure Ministry of Defence, India
Raksha Mantri
Ministry of Defence
Raksha Rajya
Mantri
Established to improve time and
cost management across all
capital acquisition processes
Ensures effective implementation of
Government policy directions and
execution of approved programmes
within approved budget
Defence Acquisition Council
(DAC)
Defence Services
 Headquarters of
Integrated
defense Staff (HQ
IDS)
 Army
 Navy
 Indian Air Force
Department of
Defence R & D
(DRDO)
Department of
Defence
 Defense budget
 Establishment
matters
 Defense Policy
 Defense cooperation with
foreign countries
 Co-ordination of all
defense related
activities
Source: Ministry of Defence, Government of India
•
Prime design
agency for
formulation and
execution of
programmes of
design/developme
nt of state of
weapons systems
and equipment of
Armed forces
Department of
Defense
Production (DDP)
•
Deals with matters
pertaining to defense
production,
indigenization of
imported stores,
equipment, spares,
planning control and
responsible for DPSUs
Defence Finance
•
Examines need for
equipment Examines financial
requirement - Makes
budgetary provisions
- Participates in
commercial
negotiation
7
Overview India Defence Scenario
India has the 3rd largest armed forces in the world in terms of active personnel
India is world’s largest arms importer and accounts for 14 per cent of the world’s arms imports
India ranks 8th globally in military spending
India’s spending on Defence sector is expected to exceed USD 100 billion over the next few years
Share of Indian Defence Services in the Defence
Budget 2013-14
India’s Defence budget for the year 2013-14 :
INR 2,29,000 crore (USD 38.38 billion)
7%
Defence expenditure accounts for
approximately 13% of India’s total expenditure
Army
Airforce
17%
Navy
49%
Army receives the largest allocation of the
Indian Defence budget
Department of
Defence Production
and R&D
27%
Defence Expenditure of India (USD billion) ; Defence Expenditure as % of GDP
60
USD billion
50
40
2.9%
2.8%
30
20
2.8%
33.9
28.5
2.8%
2.5%
2.3%
2.6%
2.5%
2.9%
2.7%
2.6%
49
49.2
49.6
48.3
2011
2012
41.6
36.1
36.2
36.7
29.2
10
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
8
Source: SIPRI, KPMG Analysis; 1USD = INR 55
Indian Defence Industry Trends & Drivers
Current Ratio of India’s Defence procurement : 70 per cent from foreign sources ; 30 per cent from Indigenous
sources
Government of India is seeking to expand procurement through indigenous sources, from the current 30 per cent
to the target 70 per cent over the next decade
Overall size and immediate modernization needs of Indian defense forces are enormous
Modernization of Defence
Forces
Improved Infrastructure
10
Availability of Skilled
Workforce
1
Trends
&
Drivers
9
2
8
Technology Transfer & Joint
Ventures
Increasing Defence Spending
3
7
4
6
Liberalization of Defence
Sector
5
Increasing Domestic Player
Involvement
Offset Driven Obligations
Increasing Overseas Supplier
Involvement
Source: TWB Report : Achieving Defence Offsets in India
Increasing Manufacturing
Capabilities
9
Defence Spending Bifurcation
Capital Expenditure vs. Revenue Expenditure
India allocates about 2.1% of its GDP towards defence spending, of which 41.3% is allocated to capital
acquisitions
Incremental growth in capital expenditure of India’s Defence budget
Of the total defence outlay for 2014-15, INR 94,588 crore (USD 15.86 billion) will be for capital expenditure
Before 2004-05, Indian defence forces had a Capital-to-Revenue ratio of 27:73 but since then it has increased by
about 12 per cent points to 39:61
80
17%
20%
18%
18%
70
13%
60
14%
13%
50
40
13%
40.7
9%
16%
14%
11%
11%
35.9
12%
10%
31.6
8%
28.4
30
25.1
3%
20
10
13%
13%
10.8
11.4
19.8
12.98
16.64
22.75
7.2
7.6
9.02
9.36
9.86
2005
2006
2007
2008
2009
13.95
Capital Expenditure
Growth rate
6%
19.14
13.2
Revenue Expenditure
16.1
18.2
21.1
23.9
27.1
0
4%
2%
0%
Source: ICD Research, KPMG Analysis
2010
2011(P) 2012(P) 2013(P) 2014(P) 2015(P) 2016(P)
10
Indian Defence Forces Modern Equipments Required
Army
Air Force
Navy
Future Infantry Soldier as a System
(F-INSAS)
Multi-Role Combat Aircrafts
Aircraft Carrier
Unmanned Aerial Vehicles (UAV)
Upgrade of Jaguar MIG-27/ MIG-29
Maritime surveillance aircraft
Upgrade of T-72 Tanks/ ICV
Mig-29K (Fulcrum-D) fighters
Radars for Coastal Surveillance
Specialized Vehicles like Mine and
Protected vehicles
Fifth Generation Fighter Aircraft
Diesel Submarines
Future MBT and Engine Device
Hawk
UAVs
155 mm Arty Guns, Field, SP
Transport Aircraft
Barak II
Helicopters, UAVs
Surface-to-Air Missiles
ATVs (nuclear subs)
Satellite Surveillance System
Medium range surface-to-air
missiles
Short/medium range battlefield
surveillance radars
Battle Field Surveillance Radar
Main Battle Tanks
11
Indian defence industry Technology Requirements
Surveillance,
Communications
High Power
Laser
Generation
Combat
technology/
protection
Advanced
Rocket
Technology
SEEKER
Technology
Hypersonic
Propulsion
Miniature SAR
&ISAR
Technology for
Hypersonic
Propulsion
Trajectory
correction
system/missile
guidance
Sensors/
Detectors/
Radars
System
simulators
Shared &
Conformal
Apertures
Miniaturization/
Nanotechnology
Thermal
imaging (TI) &
image
intensification
Networking
technologies
for seamless
integration
and Navigation
Technologies
12
Homeland Security Scenario Security Paradigm in India
Homeland Security market in India is spread across Central & State government spending and private security business
The Home Land Security market which
currently stands at ~ USD 8 billion (capital
spend from government, private sector
and some part of export demand)
expected to grow to~ USD 16 billion per
year by 2018
Border
Security
Security installations for manufacturing
hubs in sectors such as petroleum,
petrochemicals, and power is expected
to grow by 125%
Airport
Security
Mass Transport
Security
Police
Modernization
Homeland Security:
Key Threats
Critical
Infrastructure
Security
Counter
Terrorism
Central Government is likely to spend
over USD 7.5 billion and State
Governments close to USD 2 billion on
police modernization
Maritime
Security
Safe City
Surveillance
Total Transport Security spending
in India is expected to be over USD
5 billion by 2016
Government of India intends to leverage the capabilities of the private industry in IT and engineering design for meeting
the needs of the homeland security
Source: ASSOCHAM & Aviotech Report on Homeland Security Assessment –India Expansion and Growth
13
Indian defense industry
Opportunities for participation in development
Geopolitical Perspective
•
•
•
•
Sophistication of India’s arsenal lags
it regional rivals
Increased threat perception from the
neighboring countries nexus
Increased proximity to the western
economies
Increased relevance in the economic
cycle of the world
Opportunities
•
•
India is embarking on
one of the worlds largest
and most sustained
procurement cycles
India has introduced
Defense Offsets and due to
it being one of the top
military spenders in the
world, the offset
obligation is a significant
opportunity that will need
to be addressed by the
expansion of private
defense manufacturing
Structural Perspective
•
•
•
•
Very high dependence upon
imports
Very high dependence upon
platforms of Russian origin
Government owned defense
manufacturing industry has not
been efficient
Private defense manufacturing
industry is just starting to take
off
14
Indian Defence Marketplace Key Players
Public Sector
Undertaking
•Hindustan Aeronautics
Limited
•Mazagon Dock Limited
•Bharat Electronics Limited
•Bharat Dynamics Limited
•Ordnance Factory Board
•Bharat Earth Movers Limited
•BrahMos Aerospace Private
Limited
•Mishra Dhatu Nigam
Limited (MIDHANI)
•ECIL
•Hindustan Shipyard Limited
•Ordnance Factory Board
(OFB)
•Garden Reach Shipbuilders
•& Engineers (GRSE)
•Goa Shipyard Limited
•
•
Private Players
•TATA Advanced Systems Ltd.
•Larsen & Toubro
•Ashok Leyland
•Godrej and Boyce Mfg. Co. Ltd
•Mahindra Defence Systems
•Pipavav Defence & Offshoring
Company
•Bharat Forge
•MKU Private Limited
•Alpha Design Technologies
•Anjani Thermoplast
•Dynamatic Technologies
•Kirloskar Pneumatic Company
International
Players
in India
•LCorporationockheed
Martin
•General Electric
•Boeing
•Rockwell Collins
•Dassault Systems
•Northrop Grumman
•Honeywell
•EADS
•Raytheon
•Ness Technology
•Thales
•Finmeccanica
•SAAB
•BAE Systems
•Eurocopter and Typhoon
•General Dynamics
•Paramount Group
IT / ITeS
companies
in Defence Sector
•Tata Consultancy Service
•Infosys
•Wipro Technologies
•HCL
•Mahindra Satyam
•Geometric
•NeilSoft
•Plexion
•QuEST
•eServ Perot
•Rolta
•KPIT Cummins
India is emerging as a key outsourcing hub for global defense companies that are setting up exports and outsourcing bases
as long-term strategies to serve global markets
India's proven expertise in outsourcing for a range of industries and areas requiring high competency levels are the key
factor encouraging these companies
15
Defence Offsets : Indian Perspective
16
Defence Procurement Procedure & Defence Acquisition Plans Overview
Expeditious decision making
Ship Building –
competitive basis
Simplification of Contractual
and financial provisions
Establish level playing
field – private
Expansion of scope of offsets
discharge
Aim – expeditious
procurement, optimal
utilization of budgetary
resources, probity, public
accountability, transparence
in operations, free
competition and impartiality
15 Years Long Term Integrated Perspective Plan (LTIPP) formulated based on defense planning
guidelines in consultation with SHQ. Approved by DAC
Five Year Services Capital Acquisition Plan (SCAP) indicating list of equipment to be acquired, keeping
in view operational exigencies and overall requirement of funds. Approved by DAC
Annual Acquisition Plan (AAP) would be a two year roll on plan for capital acquisitions and would
consist of the schemes from approved five year Services Capital Acquisition Plan. Approved by DDP
17
Note: DAC : Defence Acquisition Council ; DDP : Department of Defence Production | Surceo: Ministry of Defence;, Govt. of India
Acquisition Categories
Capital acquisitions are categorized as under:
Buy
Outright purchase of
equipments
Buy (Global)
Both foreign &
Indian vendors can
bid
Make (DRDO)
Development of
strategic, complex
and security sensitive
systems by DRDO
Make
Indigenous development to
meet complete requirement
Buy & Make
Import partial requirement and
produce balance in India
Buy & Make
Buy (Indian)
Only Indians can
bid with min. 30%
local content
Global tenders are
issued, partial quantity
bought and balance
produced in India
Make (High-Tech)
High-tech complex
systems with min 30%
indigenous content in
prototype
Buy & Make
(Indian)
Only Indian bidders
invited and equipment
to have min 50%
indigenous content
Make (Low-Tech)
Low-tech mature
systems with min 50%
local content
18
Defence Offset Overview
•
•
Offsets are compensatory, reciprocal trade agreements for industrial goods and services applied as a
condition of military-related export, sales and services
Globally, offsets have been implemented successfully to promote the domestic Defence industry and
support the setting up of critical technologies within the procuring nation
Defence Offset
Indirect Offset
Direct offsets require the supplier to purchase
goods or make investments which are related to
the sector of the primary transaction, there by
encouraging the growth of the domestic industry
in that specific sector
Direct Offset
Indirect offsets obligate the supplier to purchase
goods or make investments from the purchasing
country which may be in certain stated sectors or be
entirely at the discretion of the vendor
The purpose is to stimulate economic growth in the
vendor country more generally
19
India Defence Offset Categorization
Buy
Buy and make with ToT
i.e. Outright purchase from Indian or foreign
vendor
Purchase from foreign vendor followed by
licensed production
Offset
Offset obligation of 30% of contract value to be
discharged by
Direct purchase
from Indian
enterprises
FDI in Indian
enterprises
• Minimum70% of total obligation
• Multipliers permitted for SMEs
• Banking allowed
Source: Ministry of Defence, Govt. of India
ToT to Indian
enterprises
Equipment to
Indian
enterprises
Equipment/
ToT to
government
institutions
Advanced
technology
acquisition by
DRDO
Multipliers permitted
20
Defence Offset India Scenario: Policy Intervention
Defence
Procurement
Procedure (DPP)
and offset
guidelines
■ Defence procurement is governed by the DPP.
■ The DPP governs all Capital Acquisitions undertaken by the MoD, Defence Services and Indian Coast Guard
■ Its aim is to incorporate procedures to expedite decision-making, simplify contractual and financial
provisions, and establish a level playing field for the public and private players
■ The offset policy is a part of the DPP and has undergone revisions with the DPP
Offset policy
Industrial
licensing policy
Foreign Direct
Investment (FDI)
policy
Foreign trade
policy
■ The policy stipulates an offset requirement of a minimum 30% for procurement of Defence equipment in
excess of USD 49.2 million
■ Under the Industries (Development and Regulation) Act 1951, an industrial license (IL) is required for
manufacturing Defence equipment
■ The applicant must be an Indian company or partnership and has to apply to the Department of Industrial
Policy and Promotion (DIPP)
■ FDI up to 49% is allowed in an Indian company manufacturing Defence equipment, subject to the company
obtaining an IL from the DIPP
■ The approval is given by the government through an application filed before the Foreign Investment and
Promotion Board (FIPB) in the Ministry of Finance
■ The import and export of Defence equipment is governed by the Director General of Foreign Trade (DGFT)
in the Department of Commerce
■ Barring some specific items, Defence equipment can be exported either after obtaining a license from the
DGFT for items in the SCOMET list or after obtaining a NOC from the Ministry of Defence
Source: Ministry of Defence, Foreign Investment Promotion Board
21
Offset Policy India Scenario: Policy Intervention
The key objectives of the Defence offset policy are to leverage capital acquisitions to
develop the Indian Defence industry by:
Fostering development of internationally competitive enterprises
Augmenting capacity for research, design and development related to Defence products and services
Encouraging development of synergistic sectors like civil aerospace, and internal security
Key Features:
Infusing greater efficiency in the procurement process
Strengthening the Defence manufacturing base in the country
Clarifications on the acquisition
Objectives of DPP 2013
Enhancing indigenization
Encourage Value addition within the country
Reducing processing time
Progress towards self- reliance in a sustained manner inclusive of Technological growth
Implementation to bring about increased opportunity for Indian industry
Source: Ministry of Defence, Govt. of India
22
Salient Features of Defence Procurement Procedure- 2013
Stronger impetus to indigenization
The Defence Procurement Procedure 2013 aims to balance the competing requirements of expediting capital procurement, developing a
robust indigenous Defence sector and conforming to the highest standards of transparency, probity and public accountability
Prioritisation of ‘buy (Indian)’ and ‘buy and make (Indian)’ for capital acquisitions under
defence procurement procedure
Maintenance ToT (MToT) will no longer be through nomination but through bidding
Advance consultations for ‘make’ procedure
Defence
Procurement
Procedure 2013
Simplification of ‘buy and make (Indian)’ procedure
Clear definition of indigenous content
Ensuring faster progress in ‘make’ and ‘buy and make (Indian) cases
Enhanced delegation of financial powers for capital acquisitions
DPP 2013 clearly focuses on
creating
a
conducive
environment for achieving
indigenization by stipulating
preferred categorization for
buy (Indian), buy and make
(Indian), make categories
and allowing the private
industry to participate in
maintenance transfer of
technology (ToT) thereby
providing a level playing
field to it with foreign OEMs
and DPSUs
Powers to DAC to approve all deviations from DPP
23
Source: Ministry of Defence, Govt. of India
Defence Offset India Scenario:
Methods of discharge of Offset Obligations
dian offsets policy provides a powerful investment driver, but could benefit from greater focus
and direction
• A major change introduced in DPP 2008 was to allow
foreign vendors to bank offset credits
• The concept of multipliers in offsets is used by many
countries around the world to encourage the inward
investment of sought-after technologies into targeted
sectors
Market Share
Defense Public
Sector Units
24%
43%
Large Industries
SMEs
33%
Source: KPMG, UKIBC
Direct Purchase
Direct purchase of products/services provided by
the Indian Defence industries, i.e. DPSUs, OFBs and
the private Defence industry
Offsets Credit
• Credit based on creation of offset programmes
created in anticipation within two financial years
before the issue of RFPs
Direct FDI
• Direct FDI in Indian Defence industries for
industrial infrastructure for services, co –
development, JV and co-production of Defence
products and components
• Direct FDI in Indian organizations engaged in R&D
as certified by the Defence Offset Facilitation
Agency (DOFA)
24
Indian Offset Contracts Value & Share
•
•
The offset policy was introduced in 2005 and the first offset contract was signed in 2007 US companies have
signed offset contracts worth over USD 2 billion, while French companies have signed contracts worth USD 1
billion
Till date offset contracts worth USD 3.2 billion mainly in manufacturing, infrastructure, engineering design,
development & testing, and simulators have been signed with Indian offset industry
OFFSET CONTRACTS (COUNTRY, VALUE IN
USD MILLION, PERCENTAGE SHARE)
Year wise Offset Contract Value (in USD million)
Italy, 334, Israel, 130,
3%
8%
USA, 2054,
48%
Source: Ministry of Defence, Govt. of India
Offset Contract Value (in USD million)
Russia,
713, 17%
France,
1046, 24%
1684
1800
1600
1400
1200
1010
1000
768
800
600
386
400
200
0
2006
207
54
2007
2008
2009
2010
2011
2012
2013
Year
25
Defence Offset India Scenario - 2020
• With perceived threats and an recovering economy, defence spending to increase substantially
• Present Offset Opportunity is estimated at USD 5 bn
• Offset opportunity expected to rise to USD 12 billion over next 3 years and USD 4-5bn per year thereafter
• Greater private sector participation in defence, to be in favour of Indian companies
• 55% of offset contracts are taken by the private sector
• Indian Aerospace and Defence industry is emerging as outsourcing hub for many services like CAD,CAM and CAE,
manufacturing and design engineering, testing and integration, and technical publications
Estimated defence spend over next decade (2012-2020)
120
102
92
100
84
USD Billion
80
62
55
60
47
41
40
51
45.1
39.5
35.7
31.7
27.9
24.2
20.2
16.6
20
76
69
0
2012
2013
2014
2015
Defense Expenditure (USD billion)
Source: KPMG Analysis, UKIBC
2016
2017
2018
2019
2020
Capital Expenditure (USD billion)
26
Gujarat has emerged as a state with excellent infrastructure facilities and can offer both forward and backward supply
chain linkages to the Defence offset and homeland security equipment manufacturing sector
Advantage Gujarat : Leveraging Opportunities to create capabilities
in Defence and Homeland Security manufacturing
27
Defence Offset Gujarat Scenario: Growth Drivers
With skilled intensive manufacturing capabilities and a robust infrastructure, Gujarat has the right ingredients
to become a key link in the Indian Defence supply chain
Gujarat’s Small and Medium
engineering companies will play a
critical role in the entire supply
chain for the Aerospace and
Defence sector
Gujarat, with a coastline of 1600 km
is well connected to all the major
port-based trade routes and acts as
a Gateway to the rich northern and
central hinterland of India
Robust Physical
Infrastructure
Strong Manufacturing
& Engineering base
with presence of
MSME’s across the
value chain
Growth
Drivers
Proactive Availability
Governanceof highly skilled
manpower
Gujarat has good educational
structure with premier institutes
in management, engineering &
technology, design, infrastructure
planning
and
R &D
Source: INDEXTB
World Class Ship
building &
repairing
facilities
Alang and Sosiya are Asia's biggest
Ship Breaking Yards. Pipavav
Shipyard owned by Pipavav Defence
& Offshore Engineering Company
Ltd is a World Class Ship Building
facility
28
Gujarat India’s Manufacturing Hub
Gujarat has a plethora of companies manufacturing precision engineering
goods which can be further aligned with the Defence offset sector’s requirement
Gujarat aims to target 35% of the possible Defence Offsets to be sourced from India
The number of
factories in
Gujarat have
increased from 21282
in 2010-11 to 22220 in
2011-12*
CAGR of
investments in
manufacturing
sector in last 6
years ~ 19%
Contribution of Manufacturing
Sector in GSDP
28.21
%
28.02
%
27.57
%
Manufacturing sector
contributes 25.2 % to the
Gujarat’ Gross State
Domestic Product valued
at : ~ INR 1,68,770 crore
(USD 28.11 billion) (at
current prices) in 201213 (Q)
Gujarat’s industrial sector comprises of over 5,75,000
MSME’s providing employment to 36.56 lakh people
(as on 31/03/2014)
27.16
%
2008-09 2009-10 2010-11 2011-12
To leverage on the progressive industrial sector of the state,
the government has initiated a “Cluster Development
Scheme” to promote and strengthen the MSME sector
Note: 1 USD = INR 60; Total MSME = 3,12,752 SSI + 2,62,000 MSME ; Employment in all factories in Gujarat covered under the ASI survey : 13.84 lakh in 2011-12 (
inclusive of managerial, supervisory and clerical personnel) Sources: CMIE, *ASI 2011-2012,CSO, Socio- Economic Survey 2013-14
29
Engineering Industry Gujarat Scenario:
Presence across value chain
Heavy
engineering
Heavy
engineering
and machine
tools
Heavy
electrical
•
•
•
•
Boilers
Turbines and generator sets
Transformers
Switchgear and control
gear
•
•
•
•
•
•
•
•
•
Textile machinery
Ceramic machinery
Sugar machinery
Rubber machinery
Material handling equipment
Oil field equipment
Metallurgical machinery
Dairy machinery
Earth moving and construction
machinery
• Agricultural machinery
Automotive
• Passenger and utility vehicles
• Auto components and auto
ancillaries
30
Engineering Industry Gujarat Scenario:
Presence across value chain
Light
engineering
Plastic
Low technology
products
• Roller bearings
• Welding equipment and
consumables
• Casting and forging
• Pipes and tubes
• Fasteners
High technology
products
Machineries
•
•
•
•
•
Injection moulding
Extrusion
Blow moulding
Reprocessing
Extrusion coating
•
•
•
•
Medical and surgical instruments
Process control instruments
Domestic appliances
Electronics
31
Engineering Industry Gujarat Scenario:
Industrial Infrastructure & Government Interventions
To capitalize on the emerging opportunities and for providing a thrust to the defence sector in Gujarat, the
state government is planning to set up an exclusive SEZ for defence supply industries
5 precision engineering clusters proposed in
Jamnagar, Halol, Sanand, Lodhika, Mandal –
these clusters will be developed by GIDC
Anjar
Units coming in these clusters will be provided
single window clearances and streamlined &
hassle-free procedures for obtaining various
approvals
Kutch
Kheda
Ahmedabad
Changodar
Navlakhi
Okha
The benefits of existing industrial park scheme
will be extended to the tune of USD 3.2 million
Vadodara
Dholera
Hazira
Amreli
Dahod
Government to identify and provide large tracts
of land for specialized trials of equipment
Development of 49 Skill Upgradation Centers
has been completed & 22 have been
operationalized 50 new Skill Upgradation
Centers within GIDC estates planned
Siemens PLM Software India Pvt Ltd will set up 5
Centres of Excellence in Gujarat for diverse industry
segments like automotive, industrial machinery,
industrial automation, aerospace and defence, and
shipbuilding
Particular
Surat
Pipavav
Simar
Units
Special economic zones
5
Special investment regions
9
Symbol
DMIC influence area
32
Source: GIDC
MSME’s will play a vital role in creating Gujarat as a Defence Industrial Base
Gujarat’s fundamental strength exists in form of a large number of MSME’s, who are transforming themselves
into major players and will play a critical role in the entire supply chain execution for the Aerospace and Defence
sector
33
Defence Offset Gujarat Scenario:
Role of MSME’s in creating Defence Industrial Base
MSMEs play an important role in the local and global supply chain of any major defence integrator as key outsourced
suppliers. Most large companies use MSMEs to deliver significant parts of their projects
•
•
•
•
Gujarat has 83 identified MSME clusters
Gujarat stands 1st in terms of the asset base of the MSME sector, according to the Fourth Census of MSMEs
State ranks 1st in integrated overall performance of MSMEs at National Level, as per ISED Small Enterprise
Observatory
Micro and Small Enterprises -Cluster Development Program (MSE-CDP) is being implemented for holistic and
integrated development of micro and small enterprises in clusters
Total SSI + MSME in Gujarat till 2013: ~5,00,000
Total investment underProactive
MSME, between FY 2010-11
Governance
and FY 2013-14, stood at INR 48255.86 crore (USD
7695 million) creating 11,05,172 jobs
Out of the total number of working
enterprises, 56.13% are located in the clusters
with an employment Contribution of 48.92% of
the total MSME employment
Source: iNDEXTb, Industries Commissionerate, Government of Gujarat
34
Defence Offset Gujarat Scenario:
Role of MSME in creating Defence Industrial Base
With MoD setting itself a goal of sourcing 70% of all equipment from Indian
companies–public and private sector - by 2020 which could provide a boost to MSMEs
MSME’s will play a vital role in
following areas of Defence Sector:
•
•
•
•
•
Research & Development
Maintenance, Repair & Operations
Software Development
Casting, forging and metal works
Naval systems, subsystems and
accessories
• Land systems, subsystems and
accessories
• Aerospace: sub systems and
accessories, ground equipment and
tooling
• IT hardware and electronics
•
•
Gujarat’s MSME’s can
leverage their strengths in
niche technology areas of
Defence Sector:
• Leverage their strength of
innovation, low economies of
scale & innovation to attain
elusive Self-Reliance
• Leverage strength in IT and
automotive industry to take
Design,
Engineer
and
manufacture
defence
&
aerospace products
• Leverage global shift from
vertically
integrated
manufacturing to design and
integration using local strength
Gujarat’s Small and Medium engineering companies will play a critical role in the entire supply chain for the
Aerospace and Defence sector
Collaboration of large business houses with Gujarat’s SME’s and MSME’s, can help transform Indian Aerospace &
Defence eco system into a robust sector and create a mark on international stage
35
Government Initiatives for MSMEs
Interest subsidy on
Eligible parameters
Awards to best
MSMEs
Integrated
Industrial
Infrastructure
Support for Vendor
Development
Venture Capital and
Patent Assistance
Cluster Development
in PPP mode
Assistance in
Quality
Certification, Skill
Enhancement and
Technology
acquisition
36
Gujarat’s World Class Shipbuilding
Industry for building new age Warships
37
Gujarat Harnessing port infrastructure for Ship Building
Gujarat, is expected to harness huge investment in the Shipbuilding Sector The State Government along with Gujara
Maritime Board (GMB) is committed to develop the industry and utilize all the competitive advantage of its positioni
Gujrat Maritime Board (GMB) is
promoting Marine Shipbuilding Parks
(MSP) at multiple locations with
private player participation
Gujarat boasts of 60% share of the
Indian shipbuilding order book and is
targeting a capacity of 3 million DWT
Gujarat has one of the world’s largest
ship recycling yards at Alang
Naval Ship
Building
Ship
Repair
Gujarat’s
Ship
Building
Opportunities
Amphibian
aircraft
Ship
Recycling
The high-flying Shipbuilding cluster
being developed is ‘Dahej Shipbuilding
cluster’
38
Gujarat Leveraging resources for building modern Warships
Alang located on the western coast of Gulf of Cambay, in the western part of India, is the largest ship-recycling yard in the world
Japan and the Gujarat government have joined hands to upgrade the existing Alang shipyard to make it the largest International
Maritime Organization-compliant ship recycling yard in the world
Gujarat’s State-of-the-art Shipbuilding
infrastructure can be used for construction of a
wide range of warships and submarines
Presently, Gujarat has nine shipbuilding yards in
operation, three under the process of approval .
Gujarat Maritime Board (GMB) has envisaged for
thirteen more notable shipbuilding projects.
Locations of Marine Shipbuilding Parks (MSP)
Nana Laija
Bedi
Jodiya
Ratanpur
Ghogha
Bhavnagar
The existing infrastructure in Gujarat makes it ideal for
dry dock, repair, maintenance, support services &
emergency refits
Mahua
Velan
There are around 50 Gujarat based SME’s that currently
supply components' to ship and submarine building
companies like Pipavav Defence and L&T
Gujarat
Pipavav
Jafrabad
Dahej
Magdalla
Billimora
Dholal
39
Gujarat Homeland Security Scenario
Homeland Security in India has witnessed an increasing focus in the recent past.
•
•
The homeland security equipment manufacturing,
which involves a lot of advanced technologies,
also offers a great opportunity for the State based
SMEs which are ready to align themselves with
the latest technologies
Gujarat with its well established Technical
Textiles, Nanotechnology,
and Science &
Technology can contribute immensely
in
emerging defence and homeland security areas
like:
•
•
•
•
•
•
Textile technology
Nanotechnology, composite material and metal
research
Night vision
Electronic miniaturization
Defensive systems in satellites
Cyber warfare
Opportunities:
• A significant market opportunity exists in several
domains comprising of the larger Homeland
Security sector such as police modernization,
critical infrastructure protection and counterterrorism activities
• Expected opening up of nuclear sector post
signing of the Civil Nuclear Cooperation Treaty
with the US is likely to create a large demand for
Nuclear/Radiological Threat Mitigation
approaches
• Biometric identification systems and similar smart
ID documents are expected to present a large
opportunity
40
Gujarat Educational Infrastructure and Skilled Manpower Availability
Number of
Degree
Engineering
Colleges,
Gujarat, 2013
8,970
1,194
16
3 540
2
Number of Seats in
Degree Engineering
Colleges, Gujarat, 2013
Government Colleges
95
50,17
9
Gujarat Forensic Science University established by
the Government of Gujarat, under the flagship of
Home Department - Government of Gujarat
• It is the only university across the world, dedicated
to Forensic & Investigative Science
• The Government of Gujarat has established
“RAKSHA SHAKTI UNIVERSITY” vide ‘The Raksha
Shakti University Act, 2009’
• The Raksha Shakti University is a unique and first of
its kind in India for conducting certificate, diploma
and degree courses in the field of police science and
internal security
Source: Gujarat Technical University
Grant-in-Aid Colleges
PPP Colleges
Self Financed Colleges
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Mechanical
Engineering
• At the end of 2013, Gujarat is projected
to have an intake capacity of 60,883
degree students in engineering
• More than 3,060 seats have been added
in 2013 alone along with 4 new
engineering colleges and institutions
• The tally leads for Mechanical
Engineering with 16, 230 seats, followed
by Civil, Electrical and others
Seat Matrix Year-Wise
(16230)
2010
2012
2011
2013
Civil
Engg.
Electrical
Engg.
Computer
(9950)
(9839)
Engg. Electronics
(8160) & Comm.
(7080) Information
Technology
(3555)
41
Doing Business In India
42
Snap Shot of Investment Cycle
Liaison Office
Branch Office
Project Office
Entry Options
Subsidiary
LLP
Exit
Strategy
Buy back
Repatriation
Dividend
Sale of shares
Interest
Listing
Royalty
Liquidation
Fees for Services
43
Foreign Investments in India - Forms of business
Foreign Investor
Unincorporated
entities
Liaison office
Generally
requires
approval
(except for
Project Office);
subject to
conditions
Incorporated
entities
Joint venture
Project office
Branch office
Wholly owned
subsidiary
Generally
permitted except
for certain sectors
where
government
approval is
required
Partnerships
Government
approval
required.
Unlimited
partnership
Limited
Liability
Partnership
Foreign
investment
recently
allowed in LLPs
A preferred form of business may be chosen based on operating flexibility, tax efficiencies and regulatory
compliances
44
Tax Environment in India
Taxes in India
Direct tax
Indirect tax
Income tax
Customs duty
Wealth tax
Sales Tax/ Value
Added Tax (‘VAT’)
Levies on transactions
Securities transaction
tax
Stamp duty
Service tax
Excise duty
Octroi/ Entry tax
R&D Cess
Direct and Indirect tax regimes are being overhauled; to be replaced with
Direct Tax Code (‘DTC’) and Goods and Services Tax (‘GST’) in near future
45
Tax Exemption for Defence Services / Technology
Tax exemption under section 10 (6C)
Royalty / Fees for
Technical Services
Agreement between GOI & Foreign
Company for security of India
Exemption notified by GOI in
the official Gazette of India
Exemption not available
For supply contract – profits arising to Foreign
Enterprise on account of supply of equipment
could be taxable in India if Foreign Enterprise
has a PE in India
46
Defence Offset India Tax Regime
The fiscal regime plays a critical role in any Defence market in creating an environment that incentivizes
and supports the long term risk taking, investment and R&D required by the industry.
Indirect Tax Regime
• Indirect tax laws provide various exemptions and
concessions applicable in the Defence sector
• Various exemptions and concessions from payment of
Customs duty (on imports) and Excise duty (on
domestic manufacture) of capital goods, machinery,
equipment, spares, tools etc. for use by the armed
forces and Defence sector
• A tax exemption is available on royalties and fee for
technical services under ‘Buy and Make with ToT’
category procurements
• R&D Cess is chargeable at the rate of 5 % on import of
technology in India under a foreign collaboration
• Any taxable services involved in the ToT agreement
would attract Service tax at applicable rates
47
Annexure
48
Defence Offset Glossary
Abbreviation
Full Form
APAC
Asia-Pacific
DRDO
Defence Research and Development Organization
FDI
Foreign Direct Investment
GIDC
Gujarat Infrastructure Development Corporation
GSDP
Gross State Domestic Product
PPP
Public Private Partnership
SMEs
Small and Medium Enterprises
ToT
Transfer of Technology
49
Defence Offset Joint Ventures (1/4)
Entity
Involved Details
•
HAL and SNECMA of France signed an agreement to form a JV that would be a
center for excellence for the manufacture of key components and assemblies of
aero engines. While HAL would bring its manufacturing experience in India,
SNECMA would transfer technology to the JV, providing HAL additional export
avenues and greater access to civil aerospace industry.
•
Lockheed Martin of the US, the world’s largest defense manufacturing company,
and Wipro Technologies of India, together announced opening of a Network
Operations Centre in Gurgaon, near New Delhi. Known as “Ambar Jyoti”
This lab will develop, demonstrate and experiment with emerging network enabled
capabilities and applications.
Lockheed Martin and Wipro will utilize cutting-edge technologies and real
environmental emulation to develop net-enabled capabilities and solutions to
employ against current, real world problems.
HAL, SNECMA of
France
Lockheed Martin,
Wipro Technologies
of India
•
•
•
Boeing, Tata
•
•
Boeing and Tata utilizes existing Tata manufacturing capability and also develops
new supply sources throughout the Indian manufacturing and engineering
communities for both commercial and defense applications.
Manufacturing capabilities established within the joint-venture company would in
later phases be leveraged across multiple Boeing programs, including the Medium
Multi-Role Combat Aircraft competition
This involved USD 500 million of defense related aerospace component work
Source: TWB Report : Achieving Defence Offsets in India
50
Defence Offset Joint Ventures (2/4)
Entity
Involved Details
•
Thales, Samtel
•
•
IT services provider Tata Consultancy Services (TCS) announced its partnership with Saab,
a provider in products and services catering to military and civil security, for the
establishment of Saab’s Aeronautical Design and Development Center (ADDC) in India.
•
Larsen & Toubro (L&T) tied up with DRDO to setup a research facility for weapons
conceptualization for all commercial production under-taken by DRDO
•
Dassault Systèmes (DS) the world leader for Product Lifecycle Man-agement (PLM)
software solutions and KPIT Cummins Infosystems Ltd a specialist solutions partner to
global manufacturing corporations, signed a go-to-market partnership for joint solution &
business devel-opment on ENOVIA Platform
•
Wipro forged a JV with GE Security of US during to jointly produce and market physical
security solutions for Indian defense forces
TCS, SAAB
L&T, DRDO
Dassault Systems,
KPIT Cummins
Infosystems Lt
Wipro, GE Security
French defense and aerospace major Thales and Samtel group announced a joint venture
to design, manufacture and sell avionics systems in the Indian market.
Samtel and Thales would hold 74:26 in the venture that was started with a capital of USD
12.5 million with more investments to be pumped in as the joint development efforts
would progress
Source: TWB Report : Achieving Defence Offsets in India
51
Defence Offset Joint Ventures (3/4)
Entity
TAAL,TIDC
HAL, CA
SAERTEX, KEM-ROC
Involved Details
•
Bangalore based Taneja Aerospace is planning to float a joint venture with
Tamil Nadu owned TIDCO to create a new facility at Hosur, manu-facture
aero parts and would exploit opportunity in the MRO
•
HAL and Canada’s CAE jointly set up a new helicopter training centre
•
SAERTEX, the world leader in non-crimp glass, carbon and aramide fabrics,
planned to set up a 50:50 Joint Venture company in India with KEMROCK
Industries and Exports Limited, Vadodara, Gujarat; and accordingly, an MOU
was entered into by and between SAERTEX and KEMROCK to form the JV.
The joint venture named as SAERTEX-KEMROCK INDIA LIMITED, would
set up a new facility for producing various components for Indian and global
aeronautical industry
•
Sikorsky, Tata Advanced
System
•
Sikorsky signed a joint venture with Tata advanced Systems in to pro-duce
cabins for the S-92 helicopter and aerospace parts in Hyderabad
Airbus, Airspace
Infrastructure Pvt.Ltd ,
Airlogic Ltd
•
Airbus, Airspace Infrastructure Pvt. Ltd and Airlogic Ltd have estab-lished a
new spare parts and logistics support joint venture - Spares Support
Solutions India, Pvt. Ltd. (SSSI).
Source: TWB Report : Achieving Defence Offsets in India
52
Defence Offset Joint Ventures (4/5)
Entity
Involved Details
•
Wipro, CA
BEL, Suriname Armed
Force
Rolls Royce, HAL
•
•
Wipro signed an agreement with CAE in to provide simulation-based training
for areas like war gaming, C4ISR and a range of defense plat-forms expected
to be acquired by India’s defense forces.
The two companies also agreed to help original equipment manufacturers
meet off-set obligations in India that are required by defense ministry.
BEL signed a contract with Suriname Armed forces for delivery of coastal
communication system network server
Rolls Royce and HAL forged a 50:50 joint venture to manufacture compressor
shroud rings and construction of a new production facility that would incorporate
the latest in modern manufacturing techniques
M&M Ltd, BAE
Mahindra & Mahindra Ltd and BAE forged a JV to develop strike vehicles for
Indian Army. M&M owns 74 % equity and BAE owns 26%
L&T, Cassdian
Government altering its current foreign direct investment (FDI) limit in the
defense sector from 26% to a higher percentage
Source: TWB Report : Achieving Defence Offsets in India
53
Defence Offset Joint Ventures (5/5)
Entity
Involved Details
•
Agusta Westland, Tata
Sons Ltd
Larsen & Toubro,
Europe's EAD
•
•
Agusta westland and Tata Sons Ltd signed to create a Joint Venture with
during which would be concentrating on assembly work of AW119 helicopter
for the worldwide market, with a production rate of 30 a year and the first
aircraft potentially ready for delivery in 2011.
The AW119 would be proposed to Indian military Reconnaissance and
Surveillance Helicopter program.
Announced the formation of a joint venture company for defense electronics
in India aim at development, design, manufacturing and related services in
the fields of electronic warfare, radars, military avionics and mobile systems
for military requirements
54
Source: TWB Report : Achieving Defence Offsets in India
Defence Offset List of Products and Services
Eligible for Discharge of Offset Obligations
Defence Products
• Small arms, mortars, cannons, guns, howitzers, anti tank weapons and their ammunition including fuses
• Bombs, torpedoes, rockets, missiles, other explosive devices and charges, related equipment and accessories specially
designed for military use, equipment specially designed for handling, control, operation, jamming and detection
• Energetic materials, explosives, propellants and pyrotechnics
• Tracked and wheeled armoured vehicles, vehicles with ballistic protection designed for military applications,
armoured or protective equipment
• Vessels of war, special naval systems, equipment and accessories to include following:  Design, manufacture or upgrade of weapons, sensors, armaments, propulsion systems, machinery control
systems, navigation equipment/instruments other marine equipment and hull forms of warships, submarines,
auxiliaries
 Facilities and equipment required for testing, certification, qualification and calibration of hull forms, platform,
propulsion and machinery control systems, weapons sensors and related equipment including enhancement of
stealth features and EMI/EMC studies for warships, submarines and auxiliaries
 Software specially designed, developed and modified for design of all types of warships, submarines and
auxiliaries or their hull forms
 Setting up of maintenance and repair facility for equipment/weapons and sensors and other marine systems
including related technical civil works.
• Aircraft, unmanned airborne vehicles, aero engines and air craft equipment, related equipment specially designed or
modified for military use, parachutes and related equipment
• Electronics and communication equipment specially designed for military use such as electronic counter measure
and counter measure equipment surveillance and monitoring, data processing and signaling, guidance and
navigation equipment, imaging equipment and night vision devices, sensors
55
Defence Offset List of Products and Services
Eligible for Discharge of Offset Obligations
Defence Products
• Specialized equipment for military training or for simulating military scenarios, specially designed simulators for use
of armaments and trainers and training aids viz. Simulators, associated equipment, software and computer based
training modules
• Forgings, castings and other unfinished products which are specially designed for products for military applications
and troop comfort equipment
• Miscellaneous equipment and materials designed for military applications, specially designed environmental test
facilities and equipment for the certification, qualification, testing or production of the above products
• Software specially designed or modified for the development, production or use of above items. This includes
software specially designed for modeling, simulation or evaluation of military weapon systems, modeling or
simulating military operation scenarios and Command, Communications, Control, Computer and Intelligence (C4I)
applications
• High velocity kinetic energy weapon systems and related equipment
• Direct energy weapon systems, related or countermeasure equipment, super conductive equipment and specially
designed for components and accessories.
Products for Inland/Coastal Security
• Arms and their ammunition including all types of close quarter weapons
• Specialized Protective Equipment for Security personnel including body armor and helmets
• Vehicles for internal security purposes including armored vehicles, bullet proof vehicles and mine protected vehicles
• Riot control equipment and protective as well as riot control vehicles
• Specialized equipment for surveillance including hand held devices and unmanned aerial vehicles
• Equipment and devices for night fighting capability including night vision devices
56
Defence Offset List of Products and Services
Eligible for Discharge of Offset Obligations
Products for Inland/Coastal Security
• Navigational and communications equipment including secure communications
• Specialized counter terrorism equipment and gear, assault platforms, detection devices, breaching gear etc.
• Specialized equipment for Harbor Security and Coastal Defence including seabed/maritime surveillance sensor
chains, sonar's, radars, optical devices, AIS
• Vessel Traffic Management Systems (VTMS/VATMS) and appropriate vessels/crafts/boats
• Miscellaneous maritime equipment for undertaking investigations, Boarding, Search and Seizure of ships/vessels
• Software specially designed, developed and modified for all types of Coastal and Maritime security domain
awareness, operations and data exchange
Services (related to eligible products)
•
•
•
•
•
•
•
Maintenance, repair and overhaul
Up gradation/life extension
Engineering, design and testing
Software development
Quality assurance
Training
Research and Development services (from government recognized R&D facilities)
57
Defence Offset Critical Defence Technology Areas and Test facilities
List of Critical Defence Technology Areas and Test facilities for Acquisition by DRDO through Offsets (To be reviewed
periodically) Critical Technology Areas Navigational and communications equipment including secure communications
•
•
•
•
•
•
•
•
•
•
•
•
•
•
MEMs based sensors, actuators, RF devices, Focal plane arrays
Nano technology based sensors and displays
Miniature SAR & ISAR technologies
Fiber Lasers Technology
EM Rail Gun technology
Shared and Conformal Apertures
High efficiency flexible Solar Cells technology
Molecularly Imprinted Polymers
Technologies for Hypersonic flights (Propulsion, Aerodynamics and Structures)
Low Observable Technologies
Technologies for generating High Power Lasers
High Strength, High-modulus, Carbon Fibers, Mesosphere pitch-based fibre, Carbon Fiber Production Facility
Pulse power network technologies
THZ Technologies
58
Defence Offset Definition of Micro, Small and Medium Enterprise
Definition of Micro, Small and Medium Enterprise:
a.
In the case of enterprises engaged in manufacture of goods:
• Micro enterprise is that where investment in plant and machinery does not exceed INR 2.5 million
• Small enterprise is that where investment in plant and machinery is more than INR 2.5 million but does
not exceed INR 50 million
• Medium enterprise is that where investment in plant and machinery is more than INR 50 million but
does not exceed INR 100 million
b. In the case of enterprises engaged in providing services:
• Micro enterprise is that where investment in equipment does not exceed INR 1 million
• Small enterprise is that where investment in equipment is more than INR 1 million but does not exceed
INR 20 million
• Medium enterprise is that where investment in equipment is more than INR 20 million but does not
exceed INR 50 million
59
FOR ADDITIONAL INFORMATION CONNECT US @
Gujarat Infrastructure Development Board
http://www.gidb.org
iNDEXTb -Industrial Extension Bureau
http://www.indextb.com
Gujarat Industrial Development Corporation
http://www.gidc.gov.in
Industries Commissionerate
httP://www.ic.gujarat.gov.in
60
Organized By
Knowledge Partner
National Partner
Visit us at www.vibrantgujarat.com
61