61
1 VIBRANT GUJARAT GUJARAT: EMERGING BASE FOR INDIGENIZATION OF THE INDIAN DEFENCE INDUSTRY DEFENCE OFFSET SECTOR PROFILE
1
VIBRANT GUJARAT
GUJARAT:
EMERGING BASE FOR INDIGENIZATION OF THE INDIAN
DEFENCE INDUSTRY DEFENCE OFFSET SECTOR PROFILE
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
Table of Contents
1289 1352 1420 1468 1525 16051711 1739 1741 1735 1753
0
500
1000
1500
2000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
39%
10%5%
4%3%
3%
3%
3%3%
2%2%
2%2%
1%
1%18%
% share in Global Defence Spending
USA
China
Russia
UK
Japan
France
SaudiArabiaIndia
0200400600800 682
165 90.7 60.8 59.3 58.9 56.7 48.3 45.8 34
Source: Stockholm International Peace Research Institute (SIPRI)
Defence Spending Global Scenario
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)
39%
10%5%
4%3%
3%
3%
3%
3%2%
2%
2%2%
1%
1% 18%
% share in Global Defence Spending
USA
China
Russia
UK
Japan
France
Saudi Arabia
India
Germany
Italy
Brazil
South Korea
Australia
Canada
Turkey
Others
Global Defence expenditure is on an upward trend and stands at over USD 1.7 trillion at current prices for 2012, registering an increase of 45 percent since 2002
4
Defence Offsets Global Scenario: 2021
2.40%4.10% 3.60%
3%
2.90%
2.90%
3.50%
4.30%
1.90%6.40%
12.10%
2.10%7.20%2.10%
2.60%
9.40%
3.50%
4.90%
14.40%
7%
Offset market share- 2012GermanyGreeceItalyNetherlandsNorwayPolandTurkeyUKSouth AfricaAustraliaIndiaIndonesiaSouth KoreaSingaporeTaiwanBrazilChileColombiaSaudi ArabiaUAE
2.10%2.70%
2.40% 2.60%
2.80%
3.60%
3.50%
3.80%
1.90%
6.40%
11.50%
2.90%
8.20%
2.30%2.90%
9.70%
3.40%
5%
14.80%
7.50%
Offset market share- 2021
Source: Frost & Sullivan
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
5
Defence Offsets Global Market Size
Source: Frost & Sullivan
Market Size
Low( 0-20 billion)
Medium( 20-40 billion)
High( > 40 billion)
Low( < 0% )
Medium( 0-4% )
High( 5-9% )
Op
po
rtu
nit
ies
for
Gro
wth
Saudi Arabia
India
Brazil
South Korea
UAE
Australia
India, Saudi Arabia & Brazil will be among the largest global defence offset markets and provide enormous opportunities for growth
10
1
2
3
4
5
6
7
8
9
1811
12
13
14
1516
17
Colombia
UK
Poland
Turkey
Chile
Chile
Norway
Italy
Taiwan
Netherlands
Indonesia
15
Singapore
12
3
4
5
67
8
9
10
11
1318
15
15
17
14 12
6
Defence Spending & Offsets : Indian Scenario
7
Organizational Structure Ministry of Defence, India
Ministry of Defence
Defence Acquisition Council(DAC)
Raksha Mantri
Raksha RajyaMantri
Ensures effective implementation of Government policy directions and
execution of approved programmes within approved budget
Established to improve time and cost management across all capital acquisition processes
Defence ServicesDepartment of
Defence
Department of Defense
Production (DDP)Defence Finance
Department of Defence R & D
(DRDO)
Headquarters of Integrated defense Staff (HQ IDS)
Army Navy Indian Air Force
Defense budget Establishment
matters Defense Policy Defense co-
operation with foreign countries
Co-ordination of all defense related activities
• Prime design agency for formulation and execution of programmes of design/development of state of weapons systems and equipment of Armed forces
• Deals with matters pertaining to defense production, indigenization of imported stores, equipment, spares, planning control and responsible for DPSUs
• Examines need for equipment -Examines financial requirement - Makes budgetary provisions - Participates in commercial negotiation
Source: Ministry of Defence, Government of India
8
Overview India Defence Scenario
Source: SIPRI, KPMG Analysis; 1USD = INR 55
• 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
India’s Defence budget for the year 2013-14 :INR 2,29,000 crore (USD 38.38 billion)
Defence expenditure accounts for approximately 13% of India’s total expenditure
Army receives the largest allocation of the Indian Defence budget
28.5 29.233.9 36.1 36.2 36.7
41.6
49 49.2 49.6 48.3
0
10
20
30
40
50
60
USD
bill
ion
Defence Expenditure of India (USD billion) ; Defence Expenditure as % of GDP
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
2.9% 2.8%2.8%
2.8% 2.5% 2.3%2.6%
2.9% 2.7% 2.6% 2.5%
49%
27%
17%
7%
Share of Indian Defence Services in the Defence Budget 2013-14
Army
Airforce
Navy
Department ofDefence Productionand R&D
9
Indian Defence Industry Trends & Drivers
Source: TWB Report : Achieving Defence Offsets in India
Improved Infrastructure
Availability of Skilled Workforce
Technology Transfer & Joint Ventures
Increasing Domestic Player Involvement
Increasing Overseas Supplier Involvement
Trends&
Drivers
1
2
3
4
8
9
10
Increasing Manufacturing Capabilities
Offset Driven Obligations
Increasing Defence Spending
Modernization of Defence Forces
67
5
Liberalization of Defence Sector
Current Ratio of India’s Defence procurement : 70 per cent from foreign sources ; 30 per cent from Indigenous sources
Overall size and immediate modernization needs of Indian defense forces are enormous
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
10
Defence Spending Bifurcation Capital Expenditure vs. Revenue Expenditure
Source: ICD Research, KPMG Analysis
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
India allocates about 2.1% of its GDP towards defence spending, of which 41.3% is allocated to capital acquisitions
7.2 7.6 9.02 9.36 9.8613.2 13.95 16.1 18.2 21.1 23.9
27.110.8 11.412.98
16.6419.14
19.822.75
25.128.4
31.6
35.9
40.7
9%
3%
17%18%
11%
14%
11%
13% 13% 13%
13% 13%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0
10
20
30
40
50
60
70
80
2005 2006 2007 2008 2009 2010 2011(P) 2012(P) 2013(P) 2014(P) 2015(P) 2016(P)
Revenue Expenditure
Capital Expenditure
Growth rate
11
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
12
Indian defence industry Technology Requirements
Technology for Hypersonic Propulsion
SEEKER Technology
Miniaturization/Nanotechnology
Trajectory correction
system/missile guidance
Surveillance, Communications
and Navigation Technologies
Thermal imaging (TI) &
image intensification
Miniature SAR &ISAR
Advanced Rocket
Technology
Shared & Conformal Apertures
High Power Laser
Generation
Sensors/Detectors/
Radars
Networking technologies for seamless integration
Combat technology/protection
Hypersonic Propulsion
System simulators
13
Homeland Security Scenario Security Paradigm in India
Homeland Security market in India is spread across Central & State government spending and private security business
Homeland Security:Key Threats
BorderSecurity
Airport Security
Police Modernization
Mass TransportSecurity
Critical Infrastructure
Security
Counter Terrorism
Safe City SurveillanceMaritime
Security
Source: ASSOCHAM & Aviotech Report on Homeland Security Assessment –India Expansion and Growth
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
Central Government is likely to spend over USD 7.5 billion and State
Governments close to USD 2 billion on police modernization
Total Transport Security spending in India is expected to be over USD
5 billion by 2016
Security installations for manufacturing hubs in sectors such as petroleum,
petrochemicals, and power is expected to grow by 125%
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
14
• Sophistication of India’s arsenal lagsit 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
Geopolitical 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
Structural Perspective
• India is embarking onone of the worlds largest and most sustainedprocurement cycles
• India has introduced Defense Offsets and due toit being one of the topmilitary spenders in theworld, the offset obligation is a significantopportunity that will needto be addressed by theexpansion of private defense manufacturing
Opportunities
Indian defense industryOpportunities for participation in development
15
Public Sector Undertaking
International Players in India
Indian Defence Marketplace Key Players
Private Players
IT / ITeScompanies
in Defence Sector
• India is emerging as a key outsourcing hub for global defense companies that are setting up exports and outsourcing basesas 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 keyfactor encouraging these companies
•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 NigamLimited (MIDHANI)•ECIL•Hindustan Shipyard Limited•Ordnance Factory Board (OFB)•Garden Reach Shipbuilders•& Engineers (GRSE)•Goa Shipyard Limited
•TATA Advanced Systems Ltd.•Larsen & Toubro•Ashok Leyland•Godrej and Boyce Mfg. Co. Ltd•Mahindra Defence Systems•Pipavav Defence & OffshoringCompany•Bharat Forge•MKU Private Limited•Alpha Design Technologies•Anjani Thermoplast•Dynamatic Technologies•Kirloskar Pneumatic Company
•LCorporationockheedMartin•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
•Tata Consultancy Service•Infosys•Wipro Technologies•HCL•Mahindra Satyam•Geometric•NeilSoft•Plexion•QuEST•eServ Perot•Rolta•KPIT Cummins
16
Defence Offsets : Indian Perspective
17
Defence Procurement Procedure & Defence Acquisition Plans Overview
Expeditious decision makingSimplification of Contractual
and financial provisionsEstablish level playing
field – private
Ship Building –competitive basis
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
Note: DAC : Defence Acquisition Council ; DDP : Department of Defence Production | Surceo: Ministry of Defence;, Govt. of India
18
Acquisition Categories
MakeIndigenous development to meet complete requirement
BuyOutright purchase of
equipments
Buy & MakeImport partial requirement and
produce balance in India
Buy (Global)Both foreign &
Indian vendors can bid
Buy (Indian)Only Indians can
bid with min. 30% local content
Buy & MakeGlobal tenders are
issued, partial quantity bought and balance
produced in India
Buy & Make (Indian)
Only Indian bidders invited and equipment
to have min 50% indigenous content
Make (DRDO)Development of
strategic, complex and security sensitive
systems by DRDO
Make (High-Tech) High-tech complex
systems with min 30% indigenous content in
prototype
Make (Low-Tech) Low-tech mature
systems with min 50% local content
Capital acquisitions are categorized as under:
19
Defence Offset Overview
Defence Offset
Indirect Offset Direct 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
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 vendorThe purpose is to stimulate economic growth in the vendor country more generally
• Offsets are compensatory, reciprocal trade agreements for industrial goods and services applied as acondition of military-related export, sales and services
• Globally, offsets have been implemented successfully to promote the domestic Defence industry andsupport the setting up of critical technologies within the procuring nation
20
India Defence Offset Categorization
Buyi.e. Outright purchase from Indian or foreign
vendor
Buy and make with ToTPurchase from foreign vendor followed by
licensed production
Direct purchase from Indian enterprises
Offset
Offset obligation of 30% of contract value to be discharged by
Advanced technology
acquisition by DRDO
Equipment/ ToT to
government institutions
Equipment to Indian
enterprises
ToT to Indian enterprises
FDI in Indian enterprises
Multipliers permitted• Minimum70% of total obligation• Multipliers permitted for SMEs• Banking allowed
Source: Ministry of Defence, Govt. of India
21
Defence Offset India Scenario: Policy Intervention
Source: Ministry of Defence, Foreign Investment Promotion Board
■ 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 financialprovisions, and establish a level playing field for the public and private players
Defence Procurement Procedure (DPP) and offset guidelines
■ The offset policy is a part of the DPP and has undergone revisions with the DPP
■ The policy stipulates an offset requirement of a minimum 30% for procurement of Defence equipment inexcess of USD 49.2 million
Offset policy
■ Under the Industries (Development and Regulation) Act 1951, an industrial license (IL) is required formanufacturing Defence equipment
■ The applicant must be an Indian company or partnership and has to apply to the Department of IndustrialPolicy and Promotion (DIPP)
Industrial licensing policy
■ FDI up to 49% is allowed in an Indian company manufacturing Defence equipment, subject to the companyobtaining an IL from the DIPP
■ The approval is given by the government through an application filed before the Foreign Investment andPromotion Board (FIPB) in the Ministry of Finance
Foreign Direct Investment (FDI) policy
■ 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 theDGFT for items in the SCOMET list or after obtaining a NOC from the Ministry of Defence
Foreign trade policy
22
Offset Policy India Scenario: Policy Intervention
Source: Ministry of Defence, Govt. of India
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 countryClarifications on the acquisition
Objectives of DPP 2013
Enhancing indigenizationEncourage Value addition within the countryReducing processing timeProgress towards self- reliance in a sustained manner inclusive of Technological growth Implementation to bring about increased opportunity for Indian industry
23
Salient Features of Defence Procurement Procedure- 2013 Stronger impetus to indigenization
Source: Ministry of Defence, Govt. of India
Defence Procurement Procedure 2013
Advance consultations for ‘make’ procedure
Simplification of ‘buy and make (Indian)’ procedure
Clear definition of indigenous content
Ensuring faster progress in ‘make’ and ‘buy and make (Indian) cases
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
Enhanced delegation of financial powers for capital acquisitions
Powers to DAC to approve all deviations from DPP
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
DPP 2013 clearly focuses oncreating a conduciveenvironment for achievingindigenization by stipulatingpreferred categorization forbuy (Indian), buy and make(Indian), make categoriesand allowing the privateindustry to participate inmaintenance transfer oftechnology (ToT) therebyproviding a level playingfield to it with foreign OEMsand DPSUs
24
Defence Offset India Scenario: Methods of discharge of Offset Obligations
Indian offsets policy provides a powerful investment driver, but could benefit from greater focus and direction
43%
33%
24%
Market Share
Defense PublicSector Units
Large Industries
SMEs
Direct Purchase Direct purchase of products/services provided by the Indian Defence industries, i.e. DPSUs, OFBs and the private Defence industry
Direct FDI• Direct FDI in Indian Defence industries for
industrial infrastructure for services, co –development, JV and co-production of Defenceproducts and components
• Direct FDI in Indian organizations engaged in R&D as certified by the Defence Offset Facilitation Agency (DOFA)
Offsets Credit• Credit based on creation of offset programmes
created in anticipation within two financial years before the issue of RFPs
• 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
Source: KPMG, UKIBC
25
Indian Offset Contracts Value & Share
Source: Ministry of Defence, Govt. of India
• The offset policy was introduced in 2005 and the first offset contract was signed in 2007 US companies havesigned offset contracts worth over USD 2 billion, while French companies have signed contracts worth USD 1billion
• 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
USA, 2054, 48%
France, 1046, 24%
Russia, 713, 17%
Italy, 334, 8%
Israel, 130, 3%
54
768
1010
207
1684
386
0
200
400
600
800
1000
1200
1400
1600
1800
2006 2007 2008 2009 2010 2011 2012 2013
Off
set
Co
ntr
act
Val
ue
(in
USD
mill
ion
)
Year
OFFSET CONTRACTS (COUNTRY, VALUE IN USD MILLION, PERCENTAGE SHARE)
Year wise Offset Contract Value (in USD million)
26
Defence Offset India Scenario - 2020
Source: KPMG Analysis, UKIBC
• 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
0
20
40
60
80
100
120
2012 2013 2014 2015 2016 2017 2018 2019 2020
4147
5562
6976
8492
102
16.620.2 24.2
27.931.7
35.739.5
45.151
USD
Bill
ion
Defense Expenditure (USD billion) Capital Expenditure (USD billion)
Estimated defence spend over next decade (2012-2020)
27
Advantage Gujarat : Leveraging Opportunities to create capabilities
in Defence and Homeland Security manufacturing
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
28
Defence Offset Gujarat Scenario: Growth Drivers
Source: INDEXTB
Proactive Governance
Gujarat’s Small and Mediumengineering companies will play acritical role in the entire supplychain for the Aerospace andDefence sector
Strong Manufacturing & Engineering base
with presence of MSME’s across the
value chain
Growth Drivers
World Class Ship building & repairing facilities
Availability
of highly skilled manpower
Robust Physical Infrastructure
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, with a coastline of 1600 kmis well connected to all the majorport-based trade routes and acts asa Gateway to the rich northern andcentral hinterland of India
Gujarat has good educationalstructure with premier institutesin management, engineering &technology, design, infrastructureplanning andR &D
Alang and Sosiya are Asia's biggestShip Breaking Yards. PipavavShipyard owned by Pipavav Defence& Offshore Engineering CompanyLtd is a World Class Ship Buildingfacility
29
27.16%
28.02%
27.57%
28.21%
2008-09 2009-10 2010-11 2011-12
Contribution of Manufacturing Sector in GSDP
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 2012-13 (Q)
CAGR of investments in manufacturing sector in last 6
years ~ 19%
The number of factories in
Gujarat have increased from 21282 in 2010-11 to 22220 in
2011-12*
Gujarat India’s Manufacturing Hub
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
Gujarat’s industrial sector comprises of over 5,75,000 MSME’s providing employment to 36.56 lakh people
(as on 31/03/2014)
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
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
30
Engineering Industry Gujarat Scenario:Presence across value chain
Heavy engineering
Heavy electrical
Heavy engineering and machine
tools
Automotive
• 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
• Passenger and utility vehicles• Auto components and auto
ancillaries
31
Engineering Industry Gujarat Scenario:Presence across value chain
Light engineering
Low technology products
High technology products
Plastic Machineries
• Roller bearings• Welding equipment and
consumables• Casting and forging• Pipes and tubes• Fasteners
• Medical and surgical instruments• Process control instruments• Domestic appliances• Electronics
• Injection moulding• Extrusion• Blow moulding• Reprocessing• Extrusion coating
32
Engineering Industry Gujarat Scenario:Industrial Infrastructure & Government Interventions
Source: GIDC
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
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
Development of 49 Skill Upgradation Centers has been completed & 22 have been
operationalized 50 new Skill Upgradation Centers within GIDC estates planned
The benefits of existing industrial park scheme will be extended to the tune of USD 3.2 million
5 precision engineering clusters proposed in Jamnagar, Halol, Sanand, Lodhika, Mandal –
these clusters will be developed by GIDC
Government to identify and provide large tracts of land for specialized trials of equipment
Units coming in these clusters will be provided single window clearances and streamlined & hassle-free procedures for obtaining various
approvals
Particular Units Symbol
Special economic zones 5
Special investment regions 9
DMIC influence area
Dahod
Kutch
Amreli
Ahmedabad
Vadodara
Surat
Kheda
Dholera
Changodar
Hazira
Okha
Navlakhi
Pipavav
Simar
Anjar
33
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
MSME’s will play a vital role in creating Gujarat as a Defence Industrial Base
34
Defence Offset Gujarat Scenario: Role of MSME’s in creating Defence Industrial Base
Proactive Governance
• 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
Source: iNDEXTb, Industries Commissionerate, Government of Gujarat
Total SSI + MSME in Gujarat till 2013: ~5,00,000
Total investment under MSME, between FY 2010-11 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% ofthe total MSME employment
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
35
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 Small and Medium engineering companies will play a critical role in the entire supply chain for theAerospace 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
Gujarat’s MSME’s can leverage their strengths in niche technology areas of
Defence Sector:
• Leverage their strength ofinnovation, low economies ofscale & innovation to attainelusive Self-Reliance
• Leverage strength in IT andautomotive industry to takeDesign, Engineer andmanufacture defence &aerospace products
• Leverage global shift fromvertically integratedmanufacturing to design andintegration using local strength
36
Integrated
Industrial
Infrastructure
Government Initiatives for MSMEs
Venture Capital andPatent Assistance
Cluster Development in PPP mode
Assistance in Quality
Certification, Skill Enhancement and
Technology acquisition
Awards to best MSMEs
Interest subsidy onEligible parameters
Support for Vendor Development
37
Gujarat’s World Class Shipbuilding
Industry for building new age Warships
38
Gujarat’s Ship
BuildingOpportunities
Naval Ship Building Ship
Repair
Amphibian aircraft
Ship Recycling
Gujarat, is expected to harness huge investment in the Shipbuilding Sector The State Government along with Gujarat Maritime Board (GMB) is committed to develop the industry and utilize all the competitive advantage of its positioning
The high-flying Shipbuilding cluster being developed is ‘Dahej Shipbuilding
cluster’
Gujarat boasts of 60% share of the Indian shipbuilding order book and is targeting a capacity of 3 million DWT
Gujrat Maritime Board (GMB) is promoting Marine Shipbuilding Parks
(MSP) at multiple locations with private player participation
Gujarat has one of the world’s largest ship recycling yards at Alang
Gujarat Harnessing port infrastructure for Ship Building
39
Alang located on the western coast of Gulf of Cambay, in the western part of India, is the largest ship-recycling yard in the worldJapan 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
There are around 50 Gujarat based SME’s that currently supply components' to ship and submarine building
companies like Pipavav Defence and L&T
The existing infrastructure in Gujarat makes it ideal for dry dock, repair, maintenance, support services &
emergency refits
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)
Gujarat Leveraging resources for building modern Warships
Gujarat
Ghogha Dahej
Pipavav
JafrabadMahua
Nana Laija
Bedi
Jodiya Ratanpur
Bhavnagar
VelanMagdalla
BillimoraDholal
40
Gujarat Homeland Security Scenario
Homeland Security in India has witnessed an increasing focus in the recent past.
Opportunities:• A significant market opportunity exists in several
domains comprising of the larger Homeland Security sector such as police modernization, critical infrastructure protection and counter-terrorism 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
• The homeland security equipment manufacturing,which involves a lot of advanced technologies,also offers a great opportunity for the State basedSMEs which are ready to align themselves withthe latest technologies
• Gujarat with its well established TechnicalTextiles, Nanotechnology, and Science &Technology can contribute immensely inemerging defence and homeland security areaslike:
• Textile technology• Nanotechnology, composite material and metal
research• Night vision• Electronic miniaturization• Defensive systems in satellites • Cyber warfare
41
Gujarat Educational Infrastructure and Skilled Manpower Availability
Number of Seats in
Degree Engineering
Colleges, Gujarat, 2013
8,970
1,194540
50,179
1632
95
Government Colleges
Grant-in-Aid Colleges
PPP Colleges
Self Financed Colleges
Number of Degree Engineering Colleges, Gujarat, 2013
• At the end of 2013, Gujarat is projectedto have an intake capacity of 60,883degree students in engineering
• More than 3,060 seats have been addedin 2013 alone along with 4 newengineering colleges and institutions
• The tally leads for MechanicalEngineering with 16, 230 seats, followedby Civil, Electrical and others
Gujarat Forensic Science University established bythe Government of Gujarat, under the flagship ofHome Department - Government of Gujarat
• It is the only university across the world, dedicatedto Forensic & Investigative Science
• The Government of Gujarat has established“RAKSHA SHAKTI UNIVERSITY” vide ‘The RakshaShakti University Act, 2009’
• The Raksha Shakti University is a unique and first ofits kind in India for conducting certificate, diplomaand degree courses in the field of police science andinternal security
Source: Gujarat Technical University
Seat Matrix Year-Wise
0
2000
4000
6000
8000
10000
12000
14000
16000
18000 (16230)
(9950) (9839)
(8160)(7080)
(3555)
2010 2011
2012 2013
MechanicalEngineering
CivilEngg.
ElectricalEngg. Computer
Engg. Electronics & Comm.
InformationTechnology
42
Doing Business In India
43
Snap Shot of Investment Cycle
Repatriation
Exit Strategy
Entry Options
Liaison Office
Branch Office
Project Office
Subsidiary
LLP
Dividend
Interest
Royalty
Fees for Services
Buy back
Sale of shares
Listing
Liquidation
44
Foreign Investments in India - Forms of business
Unincorporated entities
Incorporated entities
Partnerships
Foreign Investor
Liaison office
Project office
Branch office
Joint venture
Wholly owned subsidiary
Unlimited partnership
Limited Liability
Partnership
A preferred form of business may be chosen based on operating flexibility, tax efficiencies and regulatory compliances
Government approval required.
Generally permitted except for certain sectors
where government approval is
required
Generally requires approval
(except for Project Office);
subject to conditions
Foreign investment
recently allowed in LLPs
45
Tax Environment in India
Customs duty
Sales Tax/ Value Added Tax (‘VAT’)
Service tax
Excise duty
Taxes in India
Octroi/ Entry tax
R&D Cess
Indirect tax
Wealth tax
Income tax
Direct tax
Securities transaction tax
Stamp duty
Levies on transactions
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
46
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
47
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 ofCustoms duty (on imports) and Excise duty (ondomestic manufacture) of capital goods, machinery,equipment, spares, tools etc. for use by the armedforces and Defence sector
• A tax exemption is available on royalties and fee fortechnical services under ‘Buy and Make with ToT’category procurements
• R&D Cess is chargeable at the rate of 5 % on import oftechnology in India under a foreign collaboration
• Any taxable services involved in the ToT agreementwould attract Service tax at applicable rates
48
Annexure
49
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
50
Defence Offset Joint Ventures (1/4)
Entity Involved Details
HAL, SNECMA ofFrance
• HAL and SNECMA of France signed an agreement to form a JV that would be acenter for excellence for the manufacture of key components and assemblies ofaero engines. While HAL would bring its manufacturing experience in India,SNECMA would transfer technology to the JV, providing HAL additional exportavenues and greater access to civil aerospace industry.
Lockheed Martin,Wipro Technologies
of India
• Lockheed Martin of the US, the world’s largest defense manufacturing company,and Wipro Technologies of India, together announced opening of a NetworkOperations Centre in Gurgaon, near New Delhi. Known as “Ambar Jyoti”
• This lab will develop, demonstrate and experiment with emerging network enabledcapabilities and applications.
• Lockheed Martin and Wipro will utilize cutting-edge technologies and realenvironmental emulation to develop net-enabled capabilities and solutions toemploy against current, real world problems.
Boeing, Tata
• Boeing and Tata utilizes existing Tata manufacturing capability and also developsnew supply sources throughout the Indian manufacturing and engineeringcommunities for both commercial and defense applications.
• Manufacturing capabilities established within the joint-venture company would inlater phases be leveraged across multiple Boeing programs, including the MediumMulti-Role Combat Aircraft competition
• This involved USD 500 million of defense related aerospace component work
Source: TWB Report : Achieving Defence Offsets in India
51
Defence Offset Joint Ventures (2/4)
Entity Involved Details
Thales, Samtel
• French defense and aerospace major Thales and Samtel group announced a joint ventureto 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 USD12.5 million with more investments to be pumped in as the joint development effortswould progress
TCS, SAAB• 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 theestablishment of Saab’s Aeronautical Design and Development Center (ADDC) in India.
L&T, DRDO• 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 Systems,KPIT CumminsInfosystems Lt
• Dassault Systèmes (DS) the world leader for Product Lifecycle Man-agement (PLM)software solutions and KPIT Cummins Infosystems Ltd a specialist solutions partner toglobal manufacturing corporations, signed a go-to-market partnership for joint solution &business devel-opment on ENOVIA Platform
Wipro, GE Security• Wipro forged a JV with GE Security of US during to jointly produce and market physical
security solutions for Indian defense forces
Source: TWB Report : Achieving Defence Offsets in India
52
Entity Involved Details
TAAL,TIDC• Bangalore based Taneja Aerospace is planning to float a joint venture with
Tamil Nadu owned TIDCO to create a new facility at Hosur, manu-factureaero parts and would exploit opportunity in the MRO
HAL, CA • HAL and Canada’s CAE jointly set up a new helicopter training centre
SAERTEX, KEM-ROC
• 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 KEMROCKIndustries and Exports Limited, Vadodara, Gujarat; and accordingly, an MOUwas entered into by and between SAERTEX and KEMROCK to form the JV.
• The joint venture named as SAERTEX-KEMROCK INDIA LIMITED, wouldset up a new facility for producing various components for Indian and globalaeronautical industry
Sikorsky, Tata Advanced System
• Sikorsky signed a joint venture with Tata advanced Systems in to pro-ducecabins 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 anew spare parts and logistics support joint venture - Spares SupportSolutions India, Pvt. Ltd. (SSSI).
Defence Offset Joint Ventures (3/4)
Source: TWB Report : Achieving Defence Offsets in India
53
Entity Involved Details
Wipro, CA
• Wipro signed an agreement with CAE in to provide simulation-based trainingfor areas like war gaming, C4ISR and a range of defense plat-forms expectedto be acquired by India’s defense forces.
• The two companies also agreed to help original equipment manufacturersmeet off-set obligations in India that are required by defense ministry.
BEL, Suriname Armed Force
• BEL signed a contract with Suriname Armed forces for delivery of coastalcommunication system network server
Rolls Royce, HALRolls 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
Defence Offset Joint Ventures (4/5)
54
Entity Involved Details
Agusta Westland, Tata Sons Ltd
• Agusta westland and Tata Sons Ltd signed to create a Joint Venture withduring which would be concentrating on assembly work of AW119 helicopterfor the worldwide market, with a production rate of 30 a year and the firstaircraft potentially ready for delivery in 2011.
• The AW119 would be proposed to Indian military Reconnaissance andSurveillance Helicopter program.
Larsen & Toubro,Europe's EAD
• Announced the formation of a joint venture company for defense electronicsin India aim at development, design, manufacturing and related services inthe fields of electronic warfare, radars, military avionics and mobile systemsfor military requirements
Source: TWB Report : Achieving Defence Offsets in India
Defence Offset Joint Ventures (5/5)
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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 speciallydesigned 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 controlsystems, 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 ofstealth features and EMI/EMC studies for warships, submarines and auxiliaries
Software specially designed, developed and modified for design of all types of warships, submarines andauxiliaries or their hull forms
Setting up of maintenance and repair facility for equipment/weapons and sensors and other marine systemsincluding related technical civil works.
• Aircraft, unmanned airborne vehicles, aero engines and air craft equipment, related equipment specially designed ormodified for military use, parachutes and related equipment
• Electronics and communication equipment specially designed for military use such as electronic counter measureand counter measure equipment surveillance and monitoring, data processing and signaling, guidance andnavigation equipment, imaging equipment and night vision devices, sensors
56
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 useof armaments and trainers and training aids viz. Simulators, associated equipment, software and computer basedtraining modules
• Forgings, castings and other unfinished products which are specially designed for products for military applicationsand troop comfort equipment
• Miscellaneous equipment and materials designed for military applications, specially designed environmental testfacilities 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 includessoftware specially designed for modeling, simulation or evaluation of military weapon systems, modeling orsimulating 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
57
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)
58
List of Critical Defence Technology Areas and Test facilities for Acquisition by DRDO through Offsets (To be reviewedperiodically) 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
Defence Offset Critical Defence Technology Areas and Test facilities
59
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
Defence Offset Definition of Micro, Small and Medium Enterprise
60
FOR ADDITIONAL INFORMATION CONNECT US @
iNDEXTb -Industrial Extension Bureau
Gujarat Industrial Development Corporation
http://www.indextb.com
http://www.gidc.gov.in
Gujarat Infrastructure Development Board http://www.gidb.org
Industries Commissionerate httP://www.ic.gujarat.gov.in
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Knowledge Partner National PartnerOrganized By
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