Opportunities and challenges
Emerging technologies are going to reshape modern warfare by harnessing the power of electronics. This, in turn, will make the Indian strategic electronics (SE) sector, mainly comprising aerospace and defence, a vibrant industry over the next 10 years.
India is the seventh largest aerospace and defence (A&D) market globally. The country’s defence budget is sizeable and covers the requirements of the army, navy and air force. India needs to modernise its A&D capital equipment base by
addressing obsolescence as well as building additional capabilities through new capital acquisition. There have also been additional budgetary allocations from the Ministry
of Home Affairs for paramilitary and state police force requirements. All of this has resulted in India becoming quite attractive as an A&D electronics market.
Considering the importance of the industry in the electronic system design and manufacturing (ESDM) ecosystem, the September 2016 issue of Electronics Bazaar published an article titled, ‘Spurring demand in Strategic Electronics’. However, the defence electronics industry ecosystem has evolved significantly in the last couple of months, with respect to the implementation and amendment of government policies related to defence procurement, as well as the foreign direct investment climate. Hence, we decided to take a fresh look at the industry to understand the opportunities and challenges.
The panel of experts that contributed to this report unanimously agreed that the strategic electronics industry is poised for growth in this financial year. Of them, 90 per cent (Figure 1) feel that the industry will see a slow but steady growth. Experts feel large scale modernisation of India’s defence forces is on the anvil, and the next decade is likely to see an exponential growth in combat systems as well as non-platform based programmes that facilitate the smart battalion. Therefore, the opportunities in Indian electronics are in both standalone systems (as part of platforms) as well as at a sub-system level for other systems. According to the experts, the key factors that will influence growth are:
• Modernisation of weapon platforms
Induction of state-of-art weapons by the three armed forces Impact of indigenisation and the Make in India initiative Electronics is at the heart of each modern warfare system and currently, the country is attempting to reign in its alarming electronics import bill, which is soon expected to surpass India’s oil import bill. This presents vast opportunities to Indian companies. Their prospects for growth will also be driven by the new Defence Procurement Policy (DPP), the offset policies, the Make in India initiative and other key programmes.
According to a report from consultancy firm, Roland Berger, in partnership with two industry associations, the National Association of Software & Services Companies (NASSCOM) and India Electronics and Semiconductor Association (IESA), India’s aerospace and defence industry is expected to consume electronics worth US$ 70-72 billion in the next decade, as the country rapidly modernises its military by embracing new technologies. The same report also indicates that about US$ 53-54 billion will be for electronics acquired as part of platforms (i.e., at the Tier 1 and Tier 2 levels).
Demand for electronics worth US$ 17-18 billion is expected from projects that are traditionally called system-of-systems (non-platform based) applications.
While the above market projections are for the next 10-12 years, there could be additional momentum with other new programmes being announced in the interim. Another growth opportunity is the potential to integrate into global value chains of OEMs (initially leveraging the offset route and, subsequently, based on product quality, service delivery advantages and cost arbitrage).
Identifying areas where demand will grow
In spite of huge opportunities, there is a demand-supply gap with respect to the availability of indigenous components, products and solutions, most of which are still imported. Indian companies are not able to cater to requirements that involve low volumes, high technology and high investments.
However, the electronic products and solutions required in large volumes will be in the areas of:
• EMS, build to print (which in the context of defence production, includes firmware updates, test-jig development, manufacturing software development, component procurement, systems integration, software upgrades/enhancement, verification and validation, system deployment, HW qualification, ESS (Environmental Stress Screening), maintenance support, etc), line replaceable units for Indian
Figure 1: Forecast of the growth pattern of the SE sector in India