DEFENCE

- Anwesa Nayak

India has been one of the biggest importers of defence gear over the past five years in order to get a technological edge over the neighbouring nation. With a total strength of more than 14.4 lakh (1.44 million) active members, India has one of the largest militaries in the world. With more than 51 lakh (5.1 million) soldiers, it has the largest volunteer military in the entire world.

The Indian economy heavily depends on the defence industrial sector. The market is probably going to grow faster as national security worries increase. In India, the government owns 80% of the domestic defence industry The DRDO with its 50 labs, 4 defence shipyards, and 12 defence PSUs are all part of the public sector. India has a new defence production, acquisition, and procurement policy to increase home manufacturing and decrease imports.

The second-largest military force in the world, the Indian Defense sector, is on the verge of upheaval. India ranks third among countries that spend the most on their armed forces, with its defence spending making up 2.15% of its GDP.

Atmanirbharta in Defence

To encourage independence in the defence manufacturing industry, the government has implemented many policy initiatives and reforms. These policy initiatives are intended to promote domestic defence equipment design, research, innovation, and production, hence minimizing long-term reliance on imports. The following are significant reforms and policy initiatives in the Budget 2022:

The Indian government has set up $ 130 billion over the next five to seven years for fleet modernization across the military forces. The Ministry of Defense was given $70.6 billion as part of the Union Budget for 2022–2023.

The Indian government has set a US$25 billion defence production goal by 2025, $5 billion of which will come from the export of goods and services related to aerospace and defence.

To provide the Indian defence sector with prospective chances for manufacturing military gear, the defence ministry intends to impose an import embargo on 101 defence items (including assault weapons and artillery guns).

Make in India Initiative

The government's emphasis on the "Make in India" strategy in the defence industry gives local businesses tremendous chances to further their indigenization efforts.

In order to operate as clusters of defence manufacturers that take advantage of the available infrastructure and people resources, the government has also announced the creation of 2 dedicated Defense Industrial Corridors in the States of Tamil Nadu and Uttar Pradesh.

The foreign direct investment (FDI) quota was raised from 49% to 74% via the automatic method, which led to large FDI inflows into the defence and aerospace industries.

Furthermore, there are government programmes like iDEX (Innovations for Defence Excellence) and DTIS that help encourage innovation within the defence and aerospace ecosystem (Defence Testing Infrastructure Scheme).

The capital allocations for the armed forces modernization and infrastructure development have been greatly boosted to Rs 1.52 lakh crore in the Union Budget 2022–23. In comparison to FY 2021–2022, this implies a rise of Rs 17,308 crore (12.82%). Additionally, the Capital Budget has increased by a total of Rs. 48,975 billion since 2019–20. (47.37%).

The government's commitment to improving infrastructure development and modernization in a sustainable manner as well as to attaining the goals of "Aatmanirbhar Bharat" is shown in the rise in the overall capital budget.

The domestic industry will receive 68% of the capital procurement budget in 2022–2023 compared to 58%in 2021–2022

Start-up India: In terms of operational capabilities, the Indian government's push for startups in India and collaborations to develop novel solutions could lead to increased growth for the defence industry.

With 25% of the funding designated for defence R&D, industry, startups, and universities will have access to this field. Through the use of SPVs, private industry will be encouraged to design and develop military platforms and equipment in conjunction with DRDO and other organizations.

Creation of a nodal umbrella organization that is independent and will meet testing and certification standards.

According to the self-reliant India programme, the share of domestic capital procurement, which was set at 64% of the Defence Services' Capital Acquisition Budget for FY 2021–2022, has increased to 68%.

Innovation in Defence Manfucturing

To improve the efficacy of the armed forces and advance overall technological capabilities, Indian defence technology start-ups are creating cutting-edge technologies like automated robotics, personal protection systems, navigation systems, and drones, among others.

Technology has made it possible to guarantee the last-mile delivery of government programmes.

The "Drone Rules 2021" serve as the government's conceptual foundation for launching a thriving domestic drone production business, particularly as it strives to fortify the nation's military-industrial complex.

Startups will be supported in order to assist the "drone shakti" that will advance drone usage in the military and disaster relief industries.

Top Players

India's defence stockpiles are receiving attention after Russia's invasion on Ukraine. Although the financial markets are now in a gloomy period, several defence stocks have continued their positive run.

India stated in its Budget 2022 that 68% of defence-related items will go to Indian businesses. Therefore, just 32% of projects will be contracted out. As a result, Indian defence businesses will win more contracts and earn more money. Defence stocks will reach new heights as a result of everything.

Bharat Electronics Ltd

In order to satisfy the Indian Defense Services' needs for specialist electronic equipment, BEL was founded in 1954 in collaboration with CSF, France (now Thales). Bharat Electronics Limited (BEL) is a state-owned aerospace and defense firm with multiple regional offices in India around nine plants. It mainly produces cutting-edge electrical goods for use in ground and aircraft applications. One of the nine PSUs under the Indian Ministry of Defense is BEL. The Indian government has given it Navratna status.

The share price of Bharat Electronics Ltd. increased from its previous close of Rs. 237.40 by 3.41%. The last traded price for Bharat Electronics Ltd.'s shares was 245.50.

The BEL stock has a market cap rank of 1 in the Defense sector. BEL's market capitalization is Rs 59,818.36 Cr.

The ROE of the company is 19.99% which suggests that the business is using its current assets to generate significant returns for its owners.

The company has been maintaining a healthy ROCE of 29.00% over the past 3 years.

Hindustan Aeronautics Ltd

With its headquarters in Bengaluru, India, Hindustan Aeronautics Limited (HAL) is a state-owned aerospace and defence business in India. One of the oldest and biggest aerospace and defence corporations in the world today, HAL was founded on December 23, 1940. As of right now, HAL is engaged in the design and production of fighter jets, helicopters, jet engines, marine gas turbine engines, avionics, software development, spare parts supply, overhauling, and modernization of Indian military aircraft.

Shares of Hindustan Aeronautics Ltd. decreased in value by -0.23% from where it had previously closed at Rs. 1,730.00. The last traded price for Hindustan Aeronautics Ltd.'s shares was 1,726.10.

HAL stock is ranked number two in terms of market cap in the Defense sector. HAL's market capitalization is Rs 57,718.63 Cr. The ROE of the company is 22.64%.

The company has been maintaining a healthy ROCE of 26.68% over the past 3 years.

With increased budgetary support from defence clients, the cash flow position has dramatically improved and now exceeds Rs. 34,000 crores, including an advance payment of about Rs. 5,400 crores for the 83 LCA MK1A contract. As a result, HAL was able to pay off all of its bank loans. As of March 31, 2020, the company had borrowings totalling Rs. 5,775 crores and a positive cash position of about Rs. 6,700 crores at year's end.

Conclusion

The Indian defence industry has to develop into a key employer in the private sector and a strategically significant industry, with a primary goal of improving India's warfighting capabilities. Due to the technological complexity of modern weapons and the government's preference for indigenous suppliers, there is still room for growth in India's defence manufacturing industry. A proactive effort to build genuine military manufacturing lines can be useful for the expansion of MSME culture through entrepreneurial insight and innovation as the Atmanirbhar Bharat initiative in defence evolves and new opportunities are fostered.