India - Commercial Guide
Aerospace and Defense

This is a best prospect industry sector for this country. Includes a market overview and trade data.

Last published date: 2020-08-25

Aerospace

Overview 

Midway through 2020, the world continues to face 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, we advise U.S. companies to reach out to us for the latest updates.

In April 2020, the Center for Asia Pacific Aviation - India (CAPA) said, “The Indian aviation sector is likely to shrink significantly, even if some of the vulnerable airlines manage to survive.  CAPA India estimates that there could be 200-250 surplus aircraft for the next 6-12 months” (“COVID-19 & the State of the Indian Aviation Industry”, 3rd Update, April 6, 2020).  McKinsey voiced similar concerns: “The hardest hit sectors may not see restart until 2021”, including commercial aviation, travel, automotive, etc.  The Global health and crisis response report by McKinsey added, “It may take years to recover from production and supply chain stoppages due to critical vendors located in areas impacted by the virus”.

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’s passenger growth forecast was  442 million, with the aviation industry supporting 19.1 million jobs and contributing $172 billion to its 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 a 20-year roadmap to develop civil aviation and envisions a five-fold increase in airports to handle over a billion trips a year.  India’s Vision 2040 strategy document outlines development needs for the sector.   The Ministry of Civil Aviation (MoCA) is the primary regulatory authority for the aviation sector overseeing AAI, Directorate General of Civil Aviation (DGCA), Bureau of Civil Aviation Security (BCAS), Air India, and Pawan Hans Helicopters Limited

The Ministry of Civil Aviation released the National Civil Aviation Policy (NCAP) in 2016 to promote rapid growth of the sector, improve the ease of doing business, advance regional connectivity, and open flying opportunities to India’s largely untapped and growing market of 300 million middle-class citizens.  A key component of the NCAP is UDAN ('Ude Desh ka Aam Naagrik'), a new initiative including a Regional Connectivity Scheme (RCS) to add routes and flights to under-served locations at subsidized fares.  In January 2020, the Ministry announced the commencement of  248 RCS routes under RCS-UDAN.  In August 2018, the Ministry released a draft International Air Connectivity (IAC) scheme to promote international connectivity with Asian countries.    

The NCAP also aims to improve code share agreements.  Designated carriers can now enter international and domestic codeshares with foreign carriers if the codeshares are in accordance with existing Air Service Agreements provisions.   The FAA’s Aircraft Certification Service and DGCA maintain a “Bilateral Aviation Safety Agreement with Implementation Procedures for Airworthiness” (BASA IPA) to facilitate the exchange of aviation products.  The FAA and India’s civil aviation authorities continue to explore expanded cooperation.   BCAS, after protracted negotiations, allows U.S carriers to perform their own ground handling, in line with the U.S-India Open Skies agreement.

India’s 2020-21 national Union Budget showed a 3 percent lower planned expenditure than the revised 2019-20 budget for aviation due to a decreased allocation for Air India since the government planned to sell 100 percent of the debt-ridden airline. There was no revenue allocation for the Airports Authority of India (AAI) as it had become self-sustainable. A three per cent increase was made in the allocation for the Regional Connectivity Scheme, UDAN, with an aim to revive 50 regional airports.

The U.S. Transportation Security Administration (TSA) cooperates with MoCA and BCAS through bilateral Aviation Security Working Group meetings.  TSA and BCAS share information related to risk assessment, capacity development, air marshal training, and other security issues through a bilateral Sensitive Security Information (SSI) Memorandum of Agreement signed in 2013. 

AAI, a nodal authority under the Civil Aviation Ministry, is responsible for creating, upgrading, maintaining, and managing civil aviation infrastructure in India.  It owns about 125 airports and is one of the largest airport operators in the world.  India’s current airport infrastructure consists of 450 airstrips across the country although only 100 are considered fully operational.   

Foreign direct investment (FDI) at 100 percent is allowed for civil aviation infrastructure, while any airline stake, greater than 49 percent requires government approval.  Regarding Air India, the Indian Government has allowed foreign investment of up to 100 percent by Non-Resident Indians who are Indian nationals under the automatic route (PIB Delhi, March 4, 2020).

India’s civil aviation sector faces challenging capacity constraints including insufficient airports to meet current demand, unsuccessful attempts to privatize airports and attract greenfield investment due to lack of profitability, construction delays, ambiguity in procurement processes, lengthy environmental reviews, land acquisition issues, etc.  India was unable to privatize its national carrier Air India and helicopter operator Pawan Hans.  However, further efforts are ongoing. 

Domestic airlines continue to struggle due to hyper-competitive pricing, high fuel costs, and volatile currency rates. These market challenges led to the fall of Jet Airways in April 2019.

Units: $ millions HS code: 880000 

 

2017 

2018  

2019               

2020

(estimated)

Government budget allocation 

$795 

$645 

$541

$555

Total Exports 

$2264 

$1716

$1202

$1082

Total Imports 

$7678 

$7615

$6448

$5803

Imports from the US 

$1511 

$2587

$1402

$1261

Number of Passengers (domestic) 

103.75 million 

123.32 million

 140.33 million

126 million

Data Sources:  Ministry of Civil Aviation, Ministry of Commerce & Industry, Directorate General of Civil Aviation, USDOC, Bureau of the Census – Foreign Trade Division  

Leading Sub-Sectors 

  • 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, further opportunities are expected in these sectors.   
  • Maintenance Repair and Overhaul (MRO): India’s growing fleet of airplanes will demand more maintenance services.  90 percent 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.   India’s GST (Goods and Services Tax) Council has decided to re-work the GST structure for MRO for aircraft, slashing the tax from 18 percent to 5 percent 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.
  • Airplane and helicopter parts and components:  India’s nascent Helicopter Emergency Medical Services (HEMS) sector holds large potential for global service providers.  The increasing urbanization of Indian cities, marked by rapid growth and high traffic density, makes the need for HEMS even more urgent. 
  • 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 84 airports to be equipped with body scanners.
  • Human resource development: Training, skilling, and human resource development is another government and industry priority.  The supply of skilled human resources has not kept pace with the aviation industry’s rapid growth. There are opportunities for education and training service providers in all aspects of the aviation industry.   
  • Remotely piloted aircraft (RPA) and 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 enabling 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.   

Opportunities 

The 2020 pandemic situation is bound to have a deep impact on what was previously a fast-growing sector. The industry may undergo a 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 the 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 the inclusion of aviation turbine fuel in the Goods and Services Tax (GST), would create opportunities for U.S. companies to address India’s shortage of Maintenance Repair Operations (MRO) facilities. 

Large airport expansion projects include Delhi’s Indira Gandhi International Airport, which is currently undergoing an expansion to increase its cargo and passenger handling capacity.  A second airport for the National Capital Region is planned at Jewar, Uttar Pradesh (UP).  The UP Government also announced the Ayodhya International airport project.  Work is in progress on greenfield airports in Mumbai (Navi Mumbai International Airport) and Goa (MOPA).  Most major airports are aiming to increase airside and terminal capacity to meet demand.  

Boeing, Airbus, and other leading OEMs consider India an important global market with high demand for aircraft, a strategic geographic location, engineering expertise, and competitive labor cost.  The companies are partnering with Indian suppliers and medium and small enterprises to fulfill needs for Tier-1 suppliers and set up an aerospace industry ecosystem within the country.

The U.S.-India Aviation Cooperation Program is a public-private partnership between the U.S. and Indian governments and U.S. companies to advance aviation cooperation and business opportunities.  It was established in 2007 with the support of the U.S. Federal Aviation Administration (FAA), the U.S. Trade and Development Agency (USTDA), the U.S. Department of Commerce, the State Department, Transportation Security Administration (TSA) and other U.S. government agencies.  The ACP supports the Indian civil aerospace sector by working directly with the Indian aviation authorities to identify and execute projects that encourage collaboration between the U.S. and Indian stakeholders in aerospace technology and best practices.   

Resources

For more information, please contact U.S. Commercial Service Industry Specialist Nisha Wadhawan

Ministry of Civil Aviation

Directorate General of Civil Aviation

Bureau of Civil Aviation Security

National Civil Aviation Policy

Regional Connectivity Scheme

Digital Sky Platform

AAI Tenders

Indian Aviation Academy

Rajiv Gandhi National Aviation University

Aerospace and Aviation Sector Skill Council (AASSC)

GMR Group and GVK Group

U.S. Federal Aviation Administration  (FAA)

Transportation Security Administration (TSA)  

B. Defense Industry

Overview

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 Janes Information Group. Due to an underdeveloped defense manufacturing sector, India is one of the largest importers of defense equipment in the world. India imports approximately 60 percent of its defense requirements, according to the GOI, making India one of the most attractive markets globally for foreign defense manufacturers. India’s high level of defense imports have made it a political target are to increase indigenization and import substitutions.  India has one of the most challenging offset requirements globally when it comes to foreign suppliers.  Additionally, in August 2020 the GOI listed 101 defense items banned for imports under its quest for “self-reliance.”   

U.S. companies have had increasing success in the Indian market over the past ten years, and India has procured over $21 billion in equipment including: Boeing Apache and Chinook helicopters, P-8I maritime surveillance aircraft, and C-17 heavy transport aircraft, Lockheed Martin C-130 aircraft, and BAE M-777 howitzers.  The United States is India’s second largest defense supplier following Russia.  India also sources subsystems, components, and OEM parts from foreign suppliers.  Major U.S. defense companies expanding manufacturing operations into India will create additional opportunities for second and third tier suppliers. 

Following the U.S. designation of India as a Major Defense Partner in 2016, the U.S.-India defense trading relationship started on a positive trajectory.  

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 Communication Compatibility and Security Agreement (COMCASA) signed in 2018, will also facilitate interoperability and enhance information and intelligence sharing.  The Indian and U.S. armed forces continue to expand their schedule of bilateral and joint military exercises.  

The defense sector is a high priority for the Indian government and though they have imposed caps, they are very open to foreign direct investment.  There are also certain types of defense equipment which are not manufactured in India that are exempted from the basic customs duty.  The 2020 annual defense budget (excluding defense pensions) was scheduled to be roughly $47 billion, a marginal increase of 5.8 percent compared with last year.  The impact of COVID-19 did have Defense Ministry looking to shrink its budget by roughly 20% on the year.  But even prior to COVID, the budget is generally perceived as inadequate for the initiatives for modernization by the Indian forces.  In 2018, India issued the Defense Production Policy 2018 to promote public and private sector production and encourage medium and small enterprise participation in defense production.  India recently announced new Defense Industrial Corridors in Uttar Pradesh and Tamil Nadu with incentives to attract manufacturers and suppliers.

The Indian defense sector has historically been dominated by state-owned enterprises, known as Defense Public Sector Undertakings (DPSUs) and Ordnance Factories that report to the Ordnance Factory Board.  

These DPSUs and ordnance factories provide about 90 percent of the total domestic defense manufacturing output, according to industry sources.  India began allowing private sector participation in defense manufacturing in 2001.  While the Indian DPSUs and private sector OEMs produce combat aircraft, naval vessels, heavy trucks, and other military equipment, they invest little in research and development.  As a result, India’s defense industrial base and technologies are underdeveloped, and Indian industry has difficulty supplying the demand for modern and next-generation equipment. 

In 2016, the Ministry of Defense released the first five chapters of its Defense Procurement Procedure 2016 (DPP-2016), announcing several modifications to institutionalize, streamline, and simplify  procurement procedures to promote India’s defense sector.  DPP-2016 prioritized the promotion of locally designed, developed, and manufactured defense equipment and encouraged increased participation by Indian companies, particularly small and medium enterprises.  The final chapter was released in May 2017, which describes the rules and processes for the “Strategic Partnership” model (SPM) to develop capacity in strategic defense subsectors. 

Under the SPM, Indian and foreign OEMs will be selected by the Ministry of Defense to partner with each other. The SP model acts as a system integrator under which a global and a local manufacturer join hands to co-develop strategic equipment such as fighter aircraft, submarines, helicopters, and armored fighting vehicles/main battle tanks. The MoD aims for the initiative is to create a robust system of domestic manufacturers and suppliers.”

India’s defense ministry released a draft DPP in March 2020plans to release a new procedure in the fall of 2020 entitled the Defense Acquisition Procedure (DAP) 2020 with the aim of further encouraging indigenous capability.  The following is the revised categorization of procurement equipment: 

BUY

  • Buy (Indian – Indigenously Designed Developed and Manufactured): Direct purchase from an Indian    vendor whose products meet indigenous content requirements. 
  • Buy (Indian): Direct purchase from Indian vendors whose products meets minimum indigenous content requirements.   
  • Buy (Global -Manufacture in India): For direct purchase from foreign vendor.
  • Buy (Global): Purchase from foreign or Indian vendors.

BUY & MAKE with TOT

  • Global: Purchase from a foreign vendor followed by licensed production/indigenous manufacture
  • Indian: Purchase from an Indian vendor including JV with OEM followed by licensed production

MAKE

  • Make I: Design and development of equipment, systems, major platforms, or upgrades (MoD to fund up to 70 percent of the model development cost)
  • Make II:  Model development of equipment/system by private industry/platform or upgrades primarily for import substitution for product support of weapon systems/equipment held in services inventory
  • Make III: Sub-systems/sub-assemblies/components etc. not IDD, but manufacture in India as import substitution for product support of weapon systems/equipment held in services inventory.

LEASING

  • Lease (Indian): Lessor is the Indian vendor
  • Lease (Global):  Lessor is the foreign vendor

DESIGN AND DEVELOPMENT/INNOVATION

  • iDex: Creation of ecosystem to foster innovation and technology development in aerospace and defense sectors by engaging industries such as mid-sized, start-ups, individual innovators, and research and development institutes.
  • Open Competition:  To promote out-of-the-box thinking and encourage wider participation of innovators/entrepreneurs

The Strategic Partnership Model is the sixth category that can be pursued separately, in sequence or in tandem, with any of the first five categories.  Candidates for this category are selected early in the planning and are therefore pre-positioned ahead of all the other categories.  

Leading Sub-Sectors 

  • Land systems:  The long-awaited Future Infantry Combat Vehicle (FICV) program aims to meet the requirement for over 2,100 combat vehicles. 
  • 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.   The Ministry of Defense also hopes to expand and further develop their rotary wing and unmanned aerial system (UAS) fleets. 
  • Maintenance, Repair, and Operations (MRO):  With aging platforms and equipment being used by all the services, as well as the procurements of new advanced systems, the requirement for more robust MRO capabilities is increasing.  
  • Defense Electronics: The Indian defense electronics sector will grow to an estimated $70 billion market in the next 15 years according to Indian Infrastructure magazine. 

Opportunities 

Given the Indian government’s strong preference for products designed and manufactured in India, many U.S companies are now implementing strategies to develop partnerships, cooperation, and supply chains within India to meet future defense requirements.  Meaningful partnerships with local players and strong supply chains with local companies can help market access.   

Tata and Mahindra have entered joint ventures with U.S. defense firms.  Lockheed Martin and Tata Advanced Systems (TASL) announced an agreement in 2018 to produce of F-16 wings in India for export, and Lockheed Martin is working with Tata as a strategic partner to offer the F-21 fighter aircraft to the Indian Air Force. In 2018, Boeing announced a partnership with Hindustan Aeronautics Limited (HAL) and Mahindra Defense Systems (MDS) to offer the F-18 Super Hornet. Major Indian OEMs and tier-two companies seek U.S. suppliers and partners.  These companies include Reliance Group, Adani Group, Larsen and Toubro, and Kalyani Group as well as other Indian companies.  

The DPP-2016 included changes encouraging participation of foreign OEMs in the Indian market.  The new policy made the process for obtaining industrial licenses easier and moved from a standard lowest bidder (L1) model to a cost & technical assessment (L1-T1) model with up to 10 percent credit. To simplify the regulations governing foreign direct investment (FDI) and to make India an attractive destination for foreign investors, the government raised FDI limits from 26 percent to 49 percent in the sector, with up to 100 percent FDI possible if there is a “modern technology” transfer.

While the Indian defense market offers great potential, India is a challenging market that requires patience and persistence.  Defense procurement timeframes are very long and marked by little transparency in the procurement process and challenging regulations navigate on an extended timeline.  Poor infrastructure and skills gaps pose manufacturing challenges.  substantial payment delays have been experienced. Having a top-notch local team can help mitigate these issues and is a key factor for success in India.  

New RFI and RFP opportunities are listed on the Central Public Procurement Portal listed below under “Resources.”  

Resources 

For more information please contact U.S. Commercial Service Industry Specialist Nisha Wadhawan.  

Aero India 2021:

February 3-7, 2021, Bengaluru (South India); (U.S. pavilion) 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.

Ministry of Defense 

Department of Defense Production 

Draft DPP 2020

Restricted for imports: 101 Defense items

Indian Army      

Indian Navy      

Indian Air Force  

Border Security Force   

Central Industrial Security Force    

Indo-Tibetan Border Police Force  

Central Public Procurement Portal    

Innovations for Defense Excellence   

Media and Think Tanks:

Institute for Defense Studies and Analyses      

Vivekananda International Foundation    

Defense ProAc Biz News