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India Impact in Aerospace and Defence: Macroeconomic Trends

By GlobalData Thematic Research 04 Mar 2021 (Last Updated March 4th, 2021 10:35)

The Indian government has changed procurement and foreign direct investment (FDI) regulations to promote a greater level of private sector participation in the country’s defence sector.

India Impact in Aerospace and Defence: Macroeconomic Trends
Credit: Drill Images, Shutterstock.com.

The Indian government has changed procurement and foreign direct investment (FDI) regulations to promote a greater level of private sector participation in the country’s defence sector, and enhance the overall competitiveness of the Indian defence sector by promoting partnerships and attracting FDI in defence. Against this backdrop, the Indian ministry of defence (MoD) is anticipated to consistently increase its defence expenditure.

Macroeconomic Trends

Listed below are the key macroeconomic trends impacting the India Impact theme, as identified by GlobalData

Make in India and Make in India 2

Under Prime Minister Modi it has been the stated objective to require significant local content in contracts, essentially making the products in India, with the associated technology transfer occurring. These policies have been applied to defence procurements, with limited successes in development but arguably more successful in economic terms with regards to job generation.

Defence budget

With India’s 2020-2021 defence budget increasing by 7%, the gap with China grows every year. At roughly $66bn the budget is insufficient to fund all the stated procurement and modernise the forces in need of modernising. For context, China’s 2019 defence budget was stated to be $178bn, though the actual figure is likely to by 100 billion or so higher. Pakistan’s defence budget grew by 5% in real terms in 2020-2021.

China’s Belt and Road Initiative (BRI)

China’s BRI is a strategy of building connectivity, financial integration, and facilitating trade through infrastructure projects to connect diverse regions across Asia to Europe and Africa. The Silk Road Economic Belt and the 21st Century Maritime Silk Road refer to trade routes such as rail networks and shipping routes. Funding for BRI projects is estimated to total $1tn for the period between 2017-2027, from both state supported development and commercial banks.

The BRI has been criticised as a debt trap for vulnerable countries unable to repay loans. These activities occur in traditional Indian allied states, as well as surrounding India. Sri Lanka’s deep sea port use by PLAN, for example, is one such consequence. This policy includes expanding in the region, as well as challenging Indian influence, though it is not the primary objective.

This is an edited extract from the Impact of India on Aerospace and Defense – Thematic Research report produced by GlobalData Thematic Research.

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