The Indian defense market offers numerous market opportunities to both domestic and foreign manufacturers. As one of the largest defense equipment markets in the world, the country is expected to spend considerably on its military over the forecast period. Due to India's ageing military systems, the country needs to modernize its equipment, which will lead to an increase in capital expenditure for procuring new defense equipment. The country is also forecast to spend a significant amount of money on homeland security, intelligence and cyber security. This is primarily due to India's hostile neighbors of China and Pakistan, who have invested heavily in their defense markets, the threat of terrorism and internal security concerns. India is also one of the fastest-growing defense markets globally, with total defense expenditure registering a compound annual growth rate (CAGR) of 12.57% during the review period (2005-2010). Total defense expenditure is expected to achieve a CAGR of 13.08% during the forecast period (2011-2016).
Increased spending on homeland security
Government spending on India's homeland security market has increased significantly as a result of terrorist attacks, the smuggling of arms and explosives, and domestic insurgency. In 2010, the country's homeland security budget registered an increase of 12.8% over the previous year. Due to the nature of the security threats which the country faces, the main opportunities for growth in homeland security are expected in the aviation, mass transportation, maritime security markets, surveillance technology, global positioning systems, radars and biometric systems.
India is a large defense importer
India is one the world's largest importers of military hardware, and uses imports to fulfill 70% of its defense requirements. While India aims to procure 70% of its defense requirements domestically, the country relies upon imports to procure advanced technology, and, since most of the equipment India is seeking use advanced technology, there will be significant prospects to import defense equipment to India during the forecast period.
Several foreign companies are entering the Indian defense industry through joint ventures
Government regulation only allows foreign players a maximum equity holding of 26%. Despite this, the number of foreign companies entering the Indian defense industry through joint ventures has increased over the review period. The main reason for this increase is the awareness that the Indian defense industry is growing strongly, and the expectation that forming a joint venture will bring future benefits as the country looks to procure defense equipment domestically. Furthermore, gaining a domestic market presence will become important in order to take advantage of market opportunities as they emerge in the future.
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