MAGNUM Blog

The ‘Defence’ sector, considering its importance, is identified as one of the key sectors for ‘Make in India’. Defence sector would be given priority be it for capital acquisition, manufacturing or technology development. By 2025, turnover of USD 25 billion (including export worth USD 5 billion) is expected to be achieved in the Aerospace and Defence sector. Govt.  announced separate budget allocation (in defence manufacturing) for procurements from domestic vendors, a mechanism must be laid forth to enable participation not only from domestic players but also foreign players in this sector. To increase foreign participation, the government recently enhanced the foreign investment limit in the defence sector from 49% to 74% under the automatic sector for companies seeking new industrial licences. Investments beyond 74% will require government approval.

As per the Union Budget for the financial year 2020-21, the total allocation for Defence is around USD 62.85 Bn.  Around 1/4th of this amount is allocated for capital expenditure. India is among the top five countries with the highest military spending. Favourable government policy which promotes self-reliance, indigenisation, and technology upgradation. The policies also aim at achieving economies of scale, including the development of capabilities, for exports in the defence sectorIndia’s requirements on defence are catered largely by imports. The opening of the Defence sector for private sector participation will help foreign Original Equipment Manufacturers (OEMs) to enter into strategic partnerships with Indian companies. This will enable them to leverage the domestic markets as well as aim at global markets. Besides helping in building domestic capabilities, it will also bolster exports in the long term. Preference has been given to ‘Buy (Indian)’, ‘Buy and Make (Indian)’ and ‘Make’ categories over ‘Buy (Global)’ and ‘Buy and Make (Global)’ categories. A clear and unambiguous definition of indigenous content is provided.

The defence ministry on Thursday approved procurement of weapons and military equipment worth Rs 28,000 crore for the three services. All the weapons and military hardware approved for procurement will be acquired from domestic industry. “The Defence Acquisition Council (DAC) headed by Defence Minister Rajnath Singh approved proposals to procure equipment worth Rs 27,000 crore from domestic industry,” the defence ministry said in a statement.

Total of seven acquisition proposals were approved by the DAC, the defence ministry’s highest decision-making body on procurement. “Six of the seven proposals, that is, Rs 27,000 crore out of Rs 28,000 crore for which AoNs (Acceptance of Necessity) were granted will be sourced from the Indian industry to give a boost to the ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives,” the ministry said.

Road Ahead

The Defence Sector may witness demand in near term and also government focus would create edge for the manufacturer going forward. Growth stable and also forward growth to sustains as further orders in pipeline.

BENEFICIARIES : BHARAT FORGE, BEL, BHEL, BHARAT DYNAMICS GARDEN REACH, MAZGAON DOCK, HINDUSTANAERONAUTICS LTD, MISHRA DHATU NIGAM LTD. (MIDHANI)

Forging is traditionally considered as the back bone of manufacturing industry. It is a major input to the sectors which support economic growth of the nation, such as, Automobile, Industrial Machinery, Power, Construction & Mining Equipment, Railways and General Engineering.

The Indian forging industry is well recognized globally for its technical capabilities. With an installed capacity of around 38.5 lakh MT, Indian forging industry has a capability to forge variety of raw materials like Carbon steel, alloy steel, stainless steel, super alloy, titanium, aluminium and so forth, as per the requirements of user industry. Over the years, the Indian forging industry has evolved from being a labour-intensive industry to capital-intensive manufacturing sector.

The current investment in the plant and machinery by Indian forging companies is worth of INR 27,833 Crore. Based on their installed capacity, the forging units may be classified as very large (capacity above 75,000 MT), large (capacity above 30,000 to 75,000 MT), medium (capacity above 12,500 to 30,000 MT), small (capacity above 5,000 to 12,500 MT) and very small (capacity up to 5,000 MT). Based on this classification it is seen that about 83% of the total number of units are small and very small, while only about 8% can be classified as very large and large units; the balance of about 9% constitute the medium sized units. Current share of auto sector is about 58% of total forging production while the rest is with the non-auto sector.

Changes in Indian automobile industry directly impact Indian forging industry, because the forging components form the backbone of the Indian automobile industry. Since the automobile industry is the main customer for forgings the industry’s continuous efforts in upgrading technologies and diversifying product range has enabled it to expand its base of customers to foreign markets.

The Indian forgings industry has made rapid strides and currently, not only meets almost all the domestic demand, but has also emerged as a large exporter of forgings. Defence Sector is also creating demand for forging parts, as a result, the industry has been making significant contributions to country’s growing demand. In order to reduce the impact of cyclicality and dependence on auto sector, the industry plans to diversify into non-automotive sectors.

Road Ahead

Overall the forging industry will witness a flat rate of growth this year, but there are enough positive indications in the long term which will put the industry back on the growth track.

BENEFICIARIES: BHARAT FORGE, MM FORGING, RAMKIRSHNA FORGING, MAHINDRA CIE, INVESTMENT AND PRECISION CASTINGS LTD.