The future of Indian Defence Electronics Market looks very promising due to increasing trend in defence budget allocation, replacement of old equipment, modernization of forces and procurement of state of the art electronic equipment and technology.
Electronics systems form an integral part of almost all defence systems and are built into nearly every weapon systems and piece of equipment held by the Defence Forces. Electronics provide capabilities that are critical to defence requirements and the effectiveness and lethality of weapons systems are dependent upon the electronics subsystems they employ. Combined with “Network Enabled or Network Centric Warfare” (NCW), it will continue to grow in importance in the future, enabling far-reaching advances in military capability and efficiency. At higher level, avionics, airborne systems, military communication systems, UAVs, land system electronics, naval system electronics, electronic warfare systems, C4ISR and weapon and missile system electronics are emerging as key focus area for the defence electronics industry.
Defence Electronics Market Sub-System Segment-Wise
Opportunities for electronics in India stems across both stand-alone systems as well as at a sub-system level for other systems. At a sub-system level within defence electronics, platform electronics and data links have the highest demand under the current and anticipated defence communication/network programs. Refer Fig. given below. The total electronics opportunity emerges as Rs 330000 Crores over the next 10-15 years taking into consideration, the requirements of the Three Defence Services.
The future of defence electronics looks very promising due to increasing trend in defence budget allocation, replacement of old equipment/modernization of forces and procurement of state of the art electronic equipment and technology. Thus, the Defence electronics sector is likely to see a high growth during the next few plan periods. Some of the major futuristic stand-alone systems as well as at a sub-system level products and systems planned for induction by the Indian MoD during Twelfth and Thirteenth plan that would provide opportunities for Defence electronics are enlisted below:
- FICV for Indian Army
- FRCV for Indian Army
- Battlefield Management Systems for Indian Army
- Tactical Communication System for Indian Army
- F-INSAS for Indian Army
- Light Combat Aircraft (LCA) for Indian Air Force
- Advanced Medium Combat Aircraft (AMCA) for Indian Air Force
- Su-30 MKI Upgrade for Indian Air Force
- AFNET for Indian Air Force
- Light Utility Helicopters for three Indian Armed Forces
- P-75I for Indian Navy
- IAC-II Aircraft Carrier
- LPH for Indian Navy
- CSN for Indian Navy
Emerging Opportunities in Platform Electronics - Platform Electronics has an approximate share of 25-30% share in the overall platform cost. For Case Example in a typical Arty platform the Electronic systems are about 25% as depicted in the Diagram & Table.
Plethora of opportunities is seen in the Platform Electronics segment. While, the land systems opportunity for companies is around projects such as the FICV, FRCV, Artillery, AD Artillery and launcher programs; the naval opportunity is around platform programs of submarine programmes such as Arihant Class, Project 75-I conventional submarines, frigates, IAC-II aircraft carrier and support vehicles. In the Air Force, the market could open up around supplies to fighter and transport projects such as, Light Observation Helicopter, AMCA etc.
Emerging Opportunities in Stand-Alone Systems - In Electronics & Information Networks programs, the electronics part is around 50%-60% of overall cost. Considering the programmes in pipeline, at a system of system stand-alone level, the consolidated Rs 100000 Crores opportunity is congregated around major developmental programmes related to information systems and battle field transparency for the Indian Army like TCS and BMS. Refer Table.
Considering, India's defence budget outlay for the year 2016-17 is at around Rs 258590 Crores, so about 25% almost Rs. 67000 Crores is earmarked towards electronics, which is largely dependent on imports and will reach around Rs 180000 Crores by 2027. Thus, there lies huge indigenous production opportunity from the period which could translate into a massive business for domestic manufacturers.
The key capability gaps for the domestic players in defence electronics systems lie in the areas of IP Radios/Software Defined Radios, Military grade GPS, Encryption and Secrecy Modules, Integrated CMS solutions, 3DTC Radars, Target Acquisition Systems, Battery Backup Systems, Field Wireless Systems and support of LTE while adhering to the defence services security protocols and core electronics technologies.
In terms of core technologies, the key gaps are in the areas of Field Programmable Gated Array (FPGA) technology and Micro-Electromechanical Systems (MEMS) design and manufacturing; miniaturization, ruggedization and wireless design of existing equipment are three broad areas of focus in terms of modification of existing devices and systems. In terms of software engineering, cyber and network security solutions, algorithms and data security and software protocol stacks emerge as product gaps.
A number of key areas need to be strengthened for each part of the supply chain. The way forward for electronics in this segment varies by the role a company plays. System integrators/OEMs will need to create a viable supply chain. Indian companies will need to evolve models that rest on a triad of technology, applications and production, in a manner that engages with DRDO, DPSUs and other private players to be successful.
In line with global model, there is a requirement of structural shift likely in India, where the integrator does ~20% of value add and relies on suppliers. Refer Fig. Till now, the Electronics system manufacturing in India has been assembling imported sub systems, now CKD kits are being imported and assembled. However, now Indian components ecosystem is getting ready to move to local sourcing of components.
Key Challenges for realization of opportunity are:
- Relatively limited local production base leading to significant reliance on imports
- Limited focus on R&D. India's spending on military R&D is less than 2% of global expenditure on R&D
- Limited focus on basic sciences and development of core technologies
- Limited availability of global top talent
- High degree of product obsolescence across user services giving rise to a substantial replacement opportunity
- Other key challenges include: limited clarity on regulations related to manufacturing (though with the new Government, a large number of measures have been put in place) and lack of centralized market data to analyze the impact of policies.
Indigenous Production Scenario
The indigenous production of defence electronics is picking up momentum with the DPSUs and private sector companies are seen to be setting up their units for manufacturing defence electronics and communication. Reliance, Tata Power SED, L&T, and Mahindra Aerospace are some of the private companies that are investing big in this sector. Tata SED has started a big project and has taken about 50 acres of land in Kolar. It will spend Rs 450 Crores on the greenfield defence production facility to create an integrated digital design-to-manufacturing facility for large systems engineering and integration. However, the estimated share of these private sector companies still is just about 5% of the total market. Further, in last few years, the local sourcing from the companies who have the capability to manufacture components for the PSUs has also increased. However, it will take three to five years for maturity to take place to reach to a level where they can have a variety of suppliers for one single component. Any kind of manufacturing in electronics segment requires that much time as the gestation alone takes about 3-5 years unlike software development, which can happen in 24 hours.