India is home to the third-largest defence industry in the world after the US and China. In FY22, the government has allocated a budget of $63 billion for the defence sector. Out of the total budget allocated, over $18 billion will be directed towards the capital acquisition of arms, defence equipment, and military hardware systems.
India’s defence and aviation sector, despite being one of the largest across the world, had a limited role in economic growth as it has been traditionally heavily reliant on imports.
Though India has a well-defined defence manufacturing complex comprising ordnance factories, PSUs, and DRDO, 60% of defence requirements are met through imports. As per research by SIPRI, in 2016-2020, India accounted for 9.5% of the global defence imports, the second-largest after KSA. France, Israel & Russia are key trading defence partners for India.
Indigenous Capability Building
India is systematically reversing the trend of over-reliance on imports through indigenous capacity building. The country has outlined a detailed policy roadmap, which is backed by concentrated ground actions to boost domestic production in the defence and aerospace sector.
In May 2021, in a landmark government decision by the Indian government, 74% FDI has been allowed in defence production under the automatic route. This will attract foreign OEMs to set up in India, following strategic partnerships with local players.
In August 2020, 101 defence items were placed under the negative list. Likewise, 108 items have been added to the list in May 2021. These items include corvette systems, AEWS, radar technologies, sonar systems, carrier aircraft, ground-to-air missile systems, rifles, etc.
Barring a comprehensive list of defence items from import will give a big push to local manufacturers. The government has also allocated a budget of nearly 10 billion for defence items to be sourced exclusively from local manufacturers.
Dedicated Defence Corridors
India has set up dedicated defence corridors in the province of UP and Tamil Nadu. In UP, the six-node corridor comprising Aligarh, Agra, Chitrakoot, Jhansi, Kanpur, and Lucknow have been recently unveiled. In a short span, more than 20 MoUs have been signed.
Major international manufacturers such as Brahmos and Rheinmetall expressed their interest in setting up in the UP corridor. UP Express Industrial Development Agency (UPEIDA) has been appointed as the nodal agency for the project.
In TN, a 5-node corridor has been set up in 2019 consisting of Chennai, Trichy, Salem, Coimbatore, Hosur. Big Indian defence manufacturers such as Tata Defence, ISRO, L&T Defence, etc. have shown interest in leveraging the corridor for production purposes. In the coming decade, the TN corridor is set to catalyse an investment of close to $10 billion.
The dedicated corridors can be a game-changer in India’s tryst to become Atma Nirbhar or self-reliant in defence and aerospace manufacturing. Besides in-built infrastructure, these corridors have electricity and water available at concessional rates to lure domestic and international defence players.
A Facelift to Real Estate Demand
India’s long-term objective to become self-reliant in defence and aerospace manufacturing can also give a positive thrust to regional real estate. Big-ticket size investments in defence and aerospace will be followed by a slew of ancillary entities thereby enriching the overall regional ecosystem.
This will help the demand for industrial lands, offices, commercial spaces, and warehouses in the vicinity traverse an upward trajectory.
Likewise, as commercial activities will jump, residential demand will also be in an upturn, especially near the production clusters. Major developers will pivot to these corridors and come up with new launches and township projects to match the evolving demand.
(The author is Director- 360 Realtors.)
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