How is India’s defence production plan likely to impact companies like Bharat Dynamics, Walchandnagar, Bharat Forge and L&T?

If the ambitious plan of in-sourcing defence needs takes off, then most of the key defence players in India like Bharat Dynamics, Bharat Force, L&T and Walchandnagar would all stand to benefit. This will be apart from giants like HAL, BEML and BEL. India has unveiled an ambitious plan to locally produce defence equipment worth Rs.175,000 crore annually.

The plan is outlined in the latest draft of the Defence Production and Export Promotion Policy 2020 unveiled on 04 August. It underlines the need to push local manufacturing of arms to reduce costly imports and achieve self-reliance. This is more so in the light of the threat from China. The draft policy has set an annual export target of Rs.35,000 crore in aerospace and defence equipment.

It is estimated that the Indian armed forces will spend $130 billion in the next 5 years to procure defence equipment. Share of domestic procurement in overall defence budget is about 60%. The need of the hour is to double local procurement. Currently, India is the world’s second-largest arms importer, with Russia as its largest supplier. Russia accounts for 56% of India’s total defence imports, down from 72% in the past.

The FDI is already up from 49% to 74% in defence through the automatic route. The new plan aims at developing a dynamic, robust and competitive defence industry in India. Defence PSUs may be asked to procure necessary inputs through long-term orders. The idea is to indigenize nearly 5000 imported components by 2025, including allows and special materials.