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Executive Summary
The world is facing an unprecedented situation due to the COVID-19 pandemic. The aviation sector has been particularly hard hit globally, including India. Given the evolving situation and uncertain economic impact of the pandemic, companies are advised to reach out to us for the latest updates. Prior to the COVID-19 outbreak, India’s civil aviation market, the third largest in the world after China and the United States, was expected to continue to grow rapidly. By 2035, India was expected to be a market of 442 million passengers, with the aviation industry supporting 19.1 million jobs and contributing to $172 billion in GDP, according to the International Air Transport Association (IATA). India was expected to need an additional 2,500 passenger aircraft according to the Boeing market forecast.
India has the third largest armed forces in the world and plans to spend billions of dollars on defense acquisitions over the next several years. India is the third largest defense spender after the United States and China, according to Jane’s HIS Markit. Due to an underdeveloped defense manufacturing sector, India is one of the largest importers of defense equipment. India imports approximately 60% of its defense requirements, according to the Government of India. This makes India one of the most attractive markets globally for foreign defense manufacturers. Following the U.S. designation of India as a Major Defense Partner in 2016, the U.S.-India defense relationship continued on a positive trajectory. The defense relationship emerged as a pillar of the U.S.-India strategic relationship and an important driver to the overall bilateral relationship. In 2018, the U.S. Department of Commerce announced Tier 1 Strategic Trade Authorization status (STA-1) for India, enabling a license exception for many U.S. exports to India subject to the Export Administration Regulations (EAR).
The sentiment in India in relation to U.S. products has always been very favorable. Connections between people of the two great democracies and rich relationship between the two governments have built an unflinching trust in U.S. products. India’s middle class, constituting nearly 30 percent of India’s total population, is seen as a major force driving the country’s economy, and to a great extent influencing major policy decisions directly or indirectly.
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Market Entry
India, aptly described as having “many countries within a country” due to multiplicity of authority among other reasons, is a complex, large, and diverse market. The exporter needs to have a fair idea of India’s laws and restrictions both at macro and micro levels. The Indian market has failed those who aim to make quick money and leave. It pays you well if you build a strong foundation by getting right local partner, pursuing your goals with utmost patience, showing persistence, and with an eye on competitive pricing.
New-to-market companies must address issues of sales channels, distribution and marketing practices, pricing and labeling, and protection of intellectual property. These issues can often be effectively addressed through an Indian partner or agent. Relationships and personal meetings with potential agents are extremely important. Due diligence is strongly recommended to ensure that partners are credible and reliable.
There are many foreign companies eyeing opportunities in India. For entry into the Indian market, it is essential to identify the target market and find good partners who know the local market well and are completely acquainted with procedural issues. Foreign investors should also explore various market options in India that could include forming subsidiary relationships or joint ventures with an India-based company.
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Current Market Trends and Demand
Defense is one of the most promising sectors for U.S. exports to India, thanks to U.S. products’ technological edge and India’s determined efforts to be well-equipped in dealing with all possible challenges from some of its neighbors. Given the Indian government’s strong preference for products designed and manufactured in India (India’s defense ministry released draft DPP in March 2020 with an aim to encourage indigenous capability), many U.S. companies are now implementing strategies to develop partnerships, cooperation, and supply chains within India to meet future defense requirements. Defense procurement timeframes are long. There can be poor transparency in the procurement process and offset regulations can be challenging to navigate and manage on extended timelines. Poor infrastructure and skills gaps pose manufacturing challenges. There can also be substantial payment delays.
The 2020 pandemic situation is bound to have a deep impact on the civil aviation sector which was previously a fast-growing sector. The industry may undergo complete restructuring to meet the challenges ahead. Business models, traffic growth, fleet expansion, pricing, and costs may have to be made contextually relevant. As India builds greenfield and brownfield airports over next 10 years there will be growing opportunities in airport planning and development, sustainable airports, safety and security, body scanners, and digital systems, etc. Policy reforms, such as including aviation turbine fuel in the Goods and Services Tax (GST), would create opportunities for U.S. investment to address India’s shortage of Maintenance Repair Operations (MRO) facilities.
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Opportunities
General and Business Aviation Aircraft
India operates fewer than 300 civilian helicopters, compared to over 14,000 in the United States. Similarly, India has few small fixed-wing aircraft. With increased interest in developing regional connectivity, tourism, and emergency medical evacuation, opportunities are expected in these sectors.
Maintenance Repair and Overhaul (MRO)
India’s growing fleet of airplanes will demand more maintenance services. 90% of India’s MRO business currently occurs outside India, especially in Sri Lanka, Singapore, and Malaysia. India continues to try to develop the MRO sector. In support of this goal, India’s GST council has “decided to re-work the GST structure for MRO for aircraft and slashing the tax from 18% to 5% along with providing the benefit of full tax credit on inputs”.
Navigation and Air Traffic Management Systems
According to NCAP, the Airports Authority of India (AAI) is ranked as a top global air navigation service (ANS) provider. AAI continues to upgrade and modernize air navigation services. With the launch of the GPS Aided GEO Augmented Navigation (GAGAN) system, India became the fourth country in the world to implement satellite-based navigation systems. India began utilizing satellite-based ADS/B services in 2019. Radar systems and other air traffic management systems are in demand.
Safety and Security
Airport and aviation safety and security systems are a top Indian priority for each airport and throughout the industry. In 2018, DGCA successfully passed an FAA International Aviation Safety Assessment (IASA) based on accomplishing International Civil Aviation Organization (ICAO) standards for civil aviation regulatory safety oversight. There are many opportunities for safety and security equipment and solutions in all aspects of the aviation industry, especially x-ray scanner equipment for passengers and baggage. The government has also mandated about 84 airports to be equipped with body scanners.
Remotely Piloted Aircraft (RPA), Drones
India sees great potential and aims to develop opportunities for drones and remote aircraft. Recently, the DGCA allowed ten consortia to carry out “beyond visual line of sight” (BVLOS) drone projects in designated airspaces across the country. In 2018, the DGCA released the first drone regulations, and these enabled visual line-of-sight (VLOS) daytime-only operations under 400 feet. The Digital Sky Platform is an online system rolled out to register pilots, devices, service providers and implement a “no permission, no takeoff” (NPNT) rule and listed latest policy on beyond-VLOS operations and the delivery of payloads.
Land Systems
The Future Infantry Combat Vehicle (FICV) program aims to meet the requirement for over 2,100 combat vehicles. There are additional opportunities in field artillery modernization (self-propelled howitzers and fire control systems), small arms and crew-served weapons, and precision guided munitions and surface to air missiles.
Maritime Systems
More demand for fast patrol craft is expected. The Indian Navy is also planning to build more submarines and begin construction of a second indigenous aircraft carrier. The Navy has expanding requirements for fixed and rotary wing aircraft.
Air Systems and Air Defense
There is demand under “Make in India” for coproduction of aircraft. There is also demand for unmanned aerial systems (UAS) of all sizes and capabilities, along with missiles of various ranges. The Ministry of Defense is pursuing air defense systems and close-in weapon systems to provide point defense against ballistic projectiles, missiles, and other air threats. The Ministry of Defense also hopes to expand and further develop their rotary wing and UAS fleets.
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Trade Events
Aero India 2021
February 3-7, 2021
Bengaluru (South India)
https://aeroindia.gov.in/
The Aero India show is organized by the Indian Ministry of Defense and it is the country’s largest biennial premier air show and aviation exhibition.
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Contact
Nisha Wadhawan
U.S. Consulate General New Delhi, India
Senior Commercial Specialist
Nisha.wadhawan@trade.gov
91-11-24198000
