Opportunities Unbound – Defense and
Homeland Security in India
06 March 2012
Contents
►
Speaker Profile
►
Ernst & Young India
►
The Indian Fact file
►
Defense Market Oppurtunities
►
Overview of Defence
Procurement in India
►
Homeland Security Scenario
►
Offset, FDI and Entity structure
Page 2
Opportunities Unbound – Defense and Homeland Security
Himmat Mehta
Himmat Mehta
Associate Director, National Markets
Tel: +91 0124 464 4000
Email: [email protected]
Background
Relevant Experience
►
Himmat Mehta with an Armed Forces background is
based in Delhi and has extensive experience spanning
29 years in the aerospace, defense and homeland
security sector having worked in the industry as an
end-user while in uniform, in R & D and subsequently
has been providing consulting and business advisory
services focused on strategic growth and transactions
in the Indian market for over a decade
►
Himmat has been involved with facilitating the business
plans and launch of Indian and foreign companies in
India and Africa (SADC Region) and has been on the
Indian Board of some of these companies. He has also
been closely associated with ASSOCHAM, the Foreign
Consulates in India and industry players.
►
India-entry and feasibility assessment for various foreign
companies
Himmat also provided valuable inputs to international
and domestic business entities on the DOFA policy
besides having closely interacted with Government
during the initial stages of policy-framing. He has
worked across industry and provided services
spanning India-entry Strategy, M&A, Strategic
Expansion, JVs / Tech collaborations, Partner Search
and funding (PE) for projects in India
►
Market expansion facilitation and Partner Search
services
►
Lobbying with Government on policy issues
►
While in active service in the Armed Forces he was
actively involved with the modernization of the T-72
Tank and night fighting capability of “A” vehicles.
►
Himmat has also been involved in the assessment of
India-based System Integrators for Electronic and Allied
Solutions in the Homeland Security Industry
►
►
Indo-American Chamber of Commerce (IACC): Member: Core Committee - Homeland Security Forum
►
Guest speaker at various A&D Events / Seminars
.
Page 3
Opportunities Unbound – Defense and Homeland Security
Pawan Khatter
Pawan Khatter
Manager – Tax & Regulatory
Tel: +91 124 464 4679
Email: [email protected]
Experience
Background
►
►
Pawan is a qualified Chartered Accountant
and a Manager with Ernst & Young’s Tax
Practice focussing on Aerospace & Defence
sector
He has more than 7 years experience in
advising clients in corporate tax, foreign
investment, exchange control and other
regulatory matters
Years of Experience: 7
►
Tax Advisory services to European Defence players in relation to
their India operations
►
Advised one of the largest Indian business Group with tax structuring
and advisory support in relation to its Defence joint ventures with
Foreign OEMs
►
Tax Advisory services to a major US Defence player with respect to
Defence contracts signed with the Government of India
►
Assisted major Israeli Defence player in JV negotiations & structuring
and tax advisory services with respect to JV with a largest Indian
business Group
►
Assisted various clients in a wide spectrum of industry sectors, on
direct tax litigation at various appellate levels
►
Advised US based financial conglomerate on its entry strategy and
fund structuring for infrastructure joint venture in India
►
Advised on Indian tax and regulatory matters relating to setting up of
entity structures for investing in Indian and also on structuring their
investments into specific projects/ entities
Skills
►
Corporate tax and regulatory advisory
►
Inbound investment structuring
►
Functional experience include corporate tax
planning, structuring cross- border investments
and transactions, and joint venture negotiations
Page 4
Opportunities Unbound – Defense and Homeland Security
Ernst & Young Credentials
Page 5
Opportunities Unbound – Defense and Homeland Security
Who we are and what we stand for
152000 people | 750 offices | 140 countries | 1 unwavering commitment
Who we are
What we stand for
People who demonstrate integrity, respect and teaming.
At Ernst & Young, we’re committed
to helping our people, our clients
and our wider communities achieve
their potential.
People with energy, enthusiasm, and the courage to lead.
People who build relationships based on doing the right thing.
It’s how we make a difference.
Ernst & Young – A global leader
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide,
our people are united by our shared values and an unwavering commitment to quality.
In India*
►>7500 people
►198 partners
►10 locations
►Industry expertise – Focused industry practices
►4 Service lines – Assurance, Tax, Transactions and Advisory
►Specialty services – Global business desks, IPO, FIDS, IFRS
* (The numbers include personnel from all member firms of Ernst & Young Global in India)
Page 6
Opportunities Unbound – Defense and Homeland Security
Global Brand Survey 2011, conducted by TNS
We are the #1 professional services brand in India
►
Ranked #1 for service, people, teams, relationships
►
Ranked #1 on technical expertise, industry understanding, insight
on business issues
►
Ranked #1 for responsiveness - quick to market with solutions
►
Ranked #1 for global integration and promoting entrepreneurship
We are the # 1 brand in Tax, Transactions and Advisory
(* Survey conducted by TNS. Results for India based on 109 interviews with CFOs, other Csuite, audit committees and senior management)
Page 7
Opportunities Unbound – Defense and Homeland Security
And the largest practice in the country
►
6,000+ Professionals
►
100+ Partners
Gurgaon
►
9 Locations
►
Comprehensive Services
Delhi
Ahmedabad
Kolkata
Mumbai
Pune
Bangalore
Page 8
Hyderabad
Chennai
Opportunities Unbound – Defense and Homeland Security
Sector and specialty approach
Beyond just service
Sector specialization is the underpinning of our practice architecture. Sector – centricity is our centre of gravity, the
way we think, the way we behave and the way we approach ideas and opportunities and is the DNA of our practice
Financial Services
Industrial and Consumer Products
Asset Management
Banking and Capital Markets
Insurance
Retail and Consumer Products Automotive
Chemicals & Petrochemicals
Life Sciences and Healthcare
Manufacturing and Metals
Oil and Gas
Infrastructure, Real Estate and Government
Technology, Communications and Entertainment
Airlines
Aerospace and Defense
Government
Infrastructure – Ports, Roads, Rail
Power and Utilities
Real Estate and Construction
Hotels
Technology
Communications
Media & Entertainment
Professional Firms
Other Services
Page 9
Opportunities Unbound – Defense and Homeland Security
India Fact File
Page 10
Opportunities Unbound – Defense and Homeland Security
India is the new land of opportunity…
“In the next 25 years, we aspire to (having) growth rates of between 9 to 10 percent annually. This will enable us to lift
millions of our people out of poverty so as to transform India into one of the largest economies in the world.”
Manmohan Singh, Prime Minister of India
India fact file
Land area
Capital
Population
Climate
Page 11
3.29m sq km
New Delhi
1.2 billion
Broadly, India’s climate can be classified as tropical
monsoon. The country has four seasons — summer
(March–June), monsoon (June–September), postmonsoon (October–November) and winter (December–
February).
Natural
resources
Coal (fourth-largest reserves in the world), manganese,
bauxite, iron ore, mica, chromites, diamond, limestone,
titanium ore, natural gas, petroleum, and arable land form
India’s natural resources.
Religions
Hinduism, Islam, Christianity and Sikhism are the four
main religions followed in India. Other religions include
Buddhism, Jainism, Judaism and Zoroastrianism.
Languages
Hindi is the official language of India. Apart from Hindi,
there are 21 official languages including Bengali, Telugu,
Marathi, Tamil, Urdu, and Gujarati. English is widely used
in national, political and commercial communication.
Literacy rate
74.04% (male: 82.1%; Female: 65.5%)
Labor force
478.3 million (2010)
Opportunities Unbound – Defense and Homeland Security
…enabling steady macroeconomic growth
Stable economic variables
Structural shift from an agrarian to a services driven economy
31.5% (CAGR)
Robust forex reserves
One of the world’s fastest growing major economies
Foreign exchange reserves in India (US$ billion)
299
145
FY06
Page 12
Opportunities Unbound – Defense and Homeland Security
241
255
FY09
FY10
274
192
FY07
FY08
FY11F
Impact of the global economic crisis on India
Additional
planned
expenditure
Rupee
depreciation
Initiatives
Impact on
exports
Liberalization
of external
commercial
borrowings
Reduction in duties/
Additional allocation
for export incentive,
reduction in repo/
reverse repo rates
Economic slowdown did not have major impact in the Indian
defence spend
Page 13
Opportunities Unbound – Defense and Homeland Security
Defense Market in India
Page 14
Opportunities Unbound – Defense and Homeland Security
Why Defense?
India is the one of the world’s largest importer
of defense articles and services
Overall size and immediate modernization
needs of Indian defense forces are enormous
100% private sector investment with FDI up to
26% (prior approval of GOI), both subject to
industrial licensing
Target of 70% has been set for procurement
through indigenous sources. As against current
procurement of 9% from private sector
Page 15
Opportunities Unbound – Defense and Homeland Security
India – Need to strengthen defence
Lengthy borders/
Extensive coastline
Insurgency in terrorist
activities
Military modernization/
Nuclear armament by
neighboring countries
Creation/ promotion of
terrorist infrastructure/
terrorist attacks
Page 16
Opportunities Unbound – Defense and Homeland Security
Size of the Indian defense market
The Union Budget 2011-12 has
raised the defense outlays to
US$ 36.54 billion representing a
growth of 8.5% over the previous
years’ original allocation of US$
32.03 billion
Defence as % of GDP
2.5
Percent
2.35
2.16
2
2.03
2.12
1.95
1.5
2006-07
2007-08
2008-09
2009-10
Defence as % of GDP
Page 17
2010-11
There is an increase in capital outlay of
13.7% over last year's outlay of US$
13.52 billion. The Indian Army has been
granted the largest share of 50.60% in the
defense budget at US$ 18.50 billion
followed by Indian Air Force at US$ 10.14
billion and Indian Navy at US$ 5.40 billion
Opportunities Unbound – Defense and Homeland Security
Modernization of Indian armed forces
Existing Equipment Condition
Desirable Equipment Condition
The current profile of equipment held by Indian Armed Forces is:
► State-of-the-art: 15% vs. required 30%
► Mature: 35% vs. desirable 40%
► Obsolescent: 50% vs. acceptable 30%
Page 18
Opportunities Unbound – Defense and Homeland Security
Opportunity for participation in Indian
defense industry development
STRATEGIC PERSPECTIVE :
GEOPOLITICAL
STRATEGIC PERSPECTIVE :
STRUCTURAL
► The sophistication of India’s arsenal lags it
regional rivals
► Very high dependence upon imports
► Increased threat perception from the ChinaPakistan nexus
► Increased proximity to the western
economies
► Increased relevance in the economic cycle
of the world
► Very high dependence upon platforms of
Russian origin
► Government owned defense manufacturing
industry has not been efficient
► Private defense manufacturing industry is
just starting to take off
OPPORTUNITY
► India is embarking on one of the worlds largest and most sustained procurement cycles.
► India has introduced Defense Offsets and due to it being one of the top military spenders in the
world, the offset obligation is a significant opportunity that will need to be addressed by the
expansion of private defense manufacturing
Page 19
Opportunities Unbound – Defense and Homeland Security
All three defense services need new range of
equipment and technology
Share of Indian Defense services in
the Defense budget 2011-12
% of total expenditure
0%
6%
28%
51%
15%
Army
Page 20
Navy
Air Force
OFBs
DRDO
Opportunities Unbound – Defense and Homeland Security
New range of equipment required by Indian
Defense forces
Army
Air Force
Navy
Future Infantry Soldier as a System (FINSAS)
Multi-Role Combat Aircrafts
Aircraft Carrier
Unmanned Aerial Vehicles (UAV)
Upgrade of Jaguar MIG-27/ MIG29
Maritime surveillance aircraft
Upgrade of T-72 Tanks/ ICV
Mig-29K (Fulcrum-D) fighters
Radars for Coastal
Surveillance
Specialized Vehicles like Mine and Protected
vehicles
Fifth Generation Fighter Aircraft
Diesel Submarines
Future MBT and Engine Device
Hawk
UAVs
155 mm Arty Guns, Field, SP
Transport Aircraft
Barak II
Helicopters, UAVs
Surface-to-Air Missiles
ATVs (nuclear subs)
Satellite Surveillance System
Medium range surface-to-air
missiles
Short/medium range
battlefield surveillance radars
Battle Field Surveillance Radar
Main Battle Tanks
Page 21
Opportunities Unbound – Defense and Homeland Security
Technology requirements
Page 22
Advanced
rocket
technology
SEEKER
Technology
Surveillance,
communicatio
ns and
navigation
technologies
High Power
Laser
generation
Sensors/detec
tors/radars
Combat
technology/pro
tection
Hypersonic
Propulsion
Miniature SAR
&ISAR
Technology for
Hypersonic
Propulsion
Trajectory
correction
system/missile
guidance
System
simulators
Shared &
Conformal
Apertures
Miniaturization
/nano
technology
Thermal
imaging (TI) &
image
intensification
Networking
technologies
for seamless
integration
Opportunities Unbound – Defense and Homeland Security
Large orders-projected (all budgets are estimated)
FICV (Future
Infantry Combat
Vehicle)
►
►
►
FMBT (Future
Main Battle
Tank)
►
P-75I (Submarine)
►
►
►
►
►
Project TCS
►
(Tactical
Communication
System)
►
Replacement
for AVRO
►
Page 23
►
►
►
Mahindra ; L&T ; Tata ; OFB
MAKE
US$ 5 Bn
DRDO
Design & Development
N/A
DCNS; HDW; Navantia; Rosoboronexport
Buy & Make
US$ 12 Bn
Wipro; BEL; ECIL; TATA POWER; TCS; Rolta; Mahindra Satyam
MAKE
US$ 2 Bn
SAAB; EADS; Alenia; Embraer; Bombardier; Ilyushin; Antonov
Buy & Make Global
US$ 3 Bn (est.)
Opportunities Unbound – Defense and Homeland Security
Large orders in recent times
C-130J (6+6)
►
►
►
P-8i (8+4)
Lockheed Martin
FMS
US$(1+1)Billion
►
►
►
Boeing
DCS
US$ (2+1) Billion
C-17 (10)
►
►
►
Boeing
FMS
US$ 4.1 Billion
P-75
(Submarine)
MMRCA-Rafale
►
►
►
Page 24
Dassault Aviation
Buy & Make Global
US$ 18 Billion (est.)
Opportunities Unbound – Defense and Homeland Security
►
DCNS
► Buy & Make
Global
► US$ 6 Billion
Market Composition
Page 25
Opportunities Unbound – Defense and Homeland Security
Indian players: Landscape
Defense PSU’s
►
HAL
►
BEL
►
MIDHANI
►
OFB
►
BrahMos Aerospace
Private Limited
►
BEML
►
ECIL
Page 26
Top Private Players
►
Tata Group
►
L&T
►
Mahindra Defense
Systems
►
Godrej and Boyce
Mfg. Co. Ltd
►
Ashok Leyland
►
Alpha Design
Technologies
►
Anjani Thermoplast
►
MKU Private
Limited
India SME’s
New Entrants
►
Auto Component
companies
►
Suppliers/ vendors to
Defense PSUs/ OFB
►
Non Defense
companies (having
established
manufacturing base)
►
Suppliers/ vendors to
Foreign OEMs (very
limited in number)
►
IT companies
Opportunities Unbound – Defense and Homeland Security
Different players have employed different
business models in the A&D sector
Product complexity
Complex
L&T
Page 27
Tatas and L&T
MACMET
Technologies
Astra
Microwave,
Wipro, HCL
L&T
L&T and
EADS
Kirloskar
Brothers
Max Aerospace
and Aviation
Limited
Johnson
Pumps,
Verstala
India,
Dynamatic
Technoligies
Ramoss
India
Tata and
Lockheed
Martin
Mahindra
Defense
Systems, Tata
Motors, Ashok
Leyland,
Ramoss India
Qwest, Genser
Aerospace and IT
Private Ltd
Independent
OEM player
Services
Tata and
Sikorsky
Offset player
Simple
Tata & Israel
Aerospace
Sub system
supplier
JV with OEM
Business models
Opportunities Unbound – Defense and Homeland Security
Indian Aerospace & Defense SectorCapability division
►
►
►
►
►
►
►
TIER-1
►
►
Original Equipment Manufacturers / System Integrators
Only Hindustan Aeronautics Ltd (HAL); Bharat Dynamics Ltd. (BDL); Bharat Electronics Limited
(BEL); Bharat Earth Movers Limited (BEML) and other DPSU’s have this tag
This is largely because these were the only entities that were allowed to be present in the
Aerospace & Defense market
Private participation was only permitted from 2001 onwards
Also Government budgetary support was only available to these companies
These 2 tiers did not exist in India prior to 2001
It was only after 2001, when Private participation was permitted in the sector, did
some activity start to take place
The real shot in the arm was the OFFSET POLICY that was
introduced in 2005 and enacted in 2006
With the continuous evolution of the offset
policy, a higher level of participation is expected
►
TIER-2
►
TIER-3
Page 28
Traditionally DPSUs were playing the roles of
primes but with significant in-house production
capability spread across the entire production
process and little outsourcing beyond component
level supplies
As a result they were managing thousands of vendors as suppliers,
each with component level capability and very little tiering throughout
the supply chain. For example – OFB has 8000+ vendors and HAL
has 2500+ vendors
Opportunities Unbound – Defense and Homeland Security
Key international players active in India
Company
Boeing
Product profile
► Commercial Airplanes
► Integrated Defense Systems
Indian presence
► In 2007, Boeing and major Indian public
sector player, HAL signed a 10 year long
MOU to work together for mutual benefit
► Joint Venture with Tata’s
► Eight P-8I long-range maritime
reconnaissance and anti-submarine warfare
aircraft to the Indian navy
Dassault
► Space & Airborne Systems
► Commercial Airplanes
► Integrated Defense Systems
► Supply of 126 fighters to Indian Air Force
(“IAF”) under Buy & Make Global category of
Indian Defense Procurement Procedure
Thales
In India, Thales Group is equally
active in the civil domain as in the
field of aerospace & security
► Has a Joint Venture in India with Rolta and
Samtel
Page 29
► It also has a stake in DCNS which is
engaged in construction of 6 Scorpene
submarines at Mumbai’s Mazagon Docks
Opportunities Unbound – Defense and Homeland Security
Key international players active in India
Company
EADS
Product profile
Indian presence
► Develops and markets Civil
and Military Aircraft, as well as
Missiles, Space Rockets,
Satellites and related systems
► Sources aero structures such as doors from
HAL & software from TCS
► EADS has set up a JV in India with L&T to
explore opportunities in the Indian defense &
aerospace sector
► Acquired a 24% stake in Indian Aero
Ventures (IAV)
► MBDA, subsidiary of EADS is proposing a
JV with India’s BDL
► TATA with EADS is bidding for Army’s
Tactical Communication Systems
Finmeccanica
Page 30
► Operates globally in the
Aerospace, Defense and
Security Sectors, and is one of
the world's leading groups in
the fields of Helicopters and
Defense Electronics.
► Finmeccanica subsidiary WASS has
contracted with India private player,
Mahindra Defense Systems to help enhance
the product offerings
► Finmeccanica & BEL have signed an
agreement to produce radio systems for the
Indian Army
Opportunities Unbound – Defense and Homeland Security
Key international players active in India
Company
Product profile
Indian presence
Lockheed Martin
► P-3C Orion & Integrated
Platform Management System
for the Indian Navy
► C130J & F16 Aircrafts for the
Indian Air Force
► Weather Radars, radars,
Vessel Traffic Management
System, Littoral Combat Ship,
Aegis Weapon System, etc
► Negotiating with the Indian Navy & the
DRDO for collaboration in the IT sector,
aerospace security, RFID & other areas
AgustaWestland
12 AW101 helicopters
► AgustaWestland, a Finmeccanica company,
has been awarded a contract with a value of
EUR 560 million by the Indian Air Force for
the supply of 12 AW101 helicopters for
government transport.
AgustaWestland
AW119 helicopters in Hyderabad.
► Signed a joint venture (JV) with TATA to
assemble AW119 helicopters in Hyderabad
► Has a joint venture with TATA
► To Deliver 3 engined AW-101 helicopters to
IAF
Page 31
Opportunities Unbound – Defense and Homeland Security
Key international players active in India
Company
Product profile
Indian presence
SAAB
► RIGS head-up display
(RIGS HUD)
► Signed a memorandum of understanding to jointly
develop, manufacture and market RIGS head-up
display (RIGS HUD) in India. RIGS is a new
generation advanced light-weight head up display
(HUD) designed by Saab to provide helicopters with
a cost-effective display solution
Eurocopter
MRO (maintenance,
repair, overhaul) facility
► JV with Pawan Hans Helicopter Limited to establish
an MRO (maintenance, repair, overhaul) facility in
Delhi or Mumbai
► Second JV with Pawan Hans Helicopter LimitedStart
a pilot training facility with a full-flight simulator
Paramount
Group
Page 32
Mine-protected armoured
vehicles (MPV)
► Signed an agreement with Ashok Leyland
Opportunities Unbound – Defense and Homeland Security
Overview of Defence Procurement in India
Page 33
Opportunities Unbound – Defense and Homeland Security
Organisational Structure – Indian MoD
Raksha Mantri
Ministry of Defense
Established to improve time and cost
management across all capital
acquisition processes
Defense Acquisition
Council (DAC)
Defense
Services
- Headquarters of
Integrated defense
Staff (HQ IDS)
- Army
- Navy
- Indian Air Force
Page 34
Dept of
Defense
defense budget,
establishment matters,
defense policy, matters
relating to Parliament,
defense co-operation
with foreign countriesand
co-ordination of all
defense related activities
Raksha Rajya Mantri
Ensures effective implementation fo
Government policy directions and
execution of approved programmes
within approved budget
Dept of
Defense R&D
(DRDO)
Prime design agency for
formulation and
execution of
programmes of
design/development of
state of weapons
systems and equipment
of Armed forces
Dept of
Defense
Production
(DDP)
Deals with matters
pertaining to defense
production,
indigenisation of
imported stores,
equipment, spares,
planning control and
responsible for DPSUs
Opportunities Unbound – Defense and Homeland Security
Defense
Finance
- Examines need for
equipment
- Examines financial
requirement
- Makes budgetary
provisions
- Participates in
commercial negotiation
Spirit of Defense Procurement
Procedure (“DPP”)
Expeditious decision
making
Ship Building –
competitive basis
Page 35
Simplification of
Contractual and financial
provisions
Establish level playing
field – private and public
Expansion of scope of
offsets discharge
Aim – expeditious
procurement, optimal
utilization of budgetary
resources, probity, public
accountability, transparence
in operations, free
competition and impartiality
Opportunities Unbound – Defense and Homeland Security
Defense Acquisition Plans
15 Years Long Term Integrated Perspective Plan
(LTIPP) formulated based on defense planning guidelines
in consultation with SHQ. Approved by DAC
Five Year Services Capital Acquisition Plan (SCAP)
indicating list of equipment to be acquired, keeping in
view operational exigencies and overall requirement of
funds. Approved by DAC
Annual Acquisition Plan (AAP) would be a two year roll
on plan for capital acquisitions and would consist of the
schemes from approved five year Services Capital
Acquisition Plan. Approved by DDP
Page 36
Opportunities Unbound – Defense and Homeland Security
Acquisition Categories
Capital acquisitions are categorized as under:
Buy
Outright purchase of
equipment
Buy (Global)
Both foreign and Indian
vendors can bid
Buy (Indian)
Only Indians can bid
with min 30% local
content
Make (DRDO)
Development of strategic,
complex and security
sensitive systems by
DRDO
Page 37
Buy and Make
Import partial requirement
and produce balance in India
Make
Indigenous development to
meet complete requirement
Buy and Make
Global tenders are issued,
partial quantity bought and
balance produced in India
Make (High-Tech)
High-tech complex
systems with min 30%
indigenous content in
prototype
Buy and Make (Indian)
Only Indian bidders invited
and equipment to have min
50% indigenous content
Make (Low-Tech)
Low-tech mature systems
with min 50% local content
Opportunities Unbound – Defense and Homeland Security
Homeland Security Scenario
Page 38
Opportunities Unbound – Defense and Homeland Security
Security Paradigm In India
► India
Nation – Very High Threat Perception – Internal &
External
► Till Recently Indian & State Governments were largely
responsible for providing security cover to its citizens,
borders, buildings, airports , rail, transport etc.
► After 26/11 it is becoming a collaborative responsibility.
► Governments going for advance & on line state of art
security systems.
► Privatization bringing in new players for securing national
& organizational assets.
Page 39
Opportunities Unbound – Defense and Homeland Security
Indian security market
Overall homeland security market is spread across central and state government
spending and private security business
Key Insights
► Total homeland security
spending in the Indian market
is expected to exceed USD 10
billion by 2016
►
Over the past five years,
private security business in the
country has grown at a CAGR
of 25% to reach an estimated
value of USD2 billion
Page 40
Mass
transport
security
Border
security
Key threat
domains
Seaport
security
Maritime
security
Large event
security
Opportunities Unbound – Defense and Homeland Security
Airport
security
First
responder
Critical
infrastructure
security
Internal Security Market in India: Government
sector
►
India’s homeland security agencies received
a substantial 25% y-o-y increase in their
budget spending for 2009–10 vs only Approx
3% increase in the Defence Budget
►
In 2009–10, Paramilitary forces were
allocated USD 4.3 Billion as against USD3.4
billion in 2008–09
Drivers
►
Increased threat
perception across all threat
domains
Liberalization and opening up of
Market to Private Players
Additional amount of USD 100 Million is
being proposed for modernization of police
Growth of Indian Economy
forces in the current year
►
Additional amount of USD 500 Million is
being provided for construction of fences,
roads, flood-lights on the international borders
►
Budgetary
Constraints
Page 41
Manpower intensive security
measures
Delhi Police was allocated USD 1.5 Billion
for Commonwealth Games Delhi 2010
security requirements
Opportunities Unbound – Defense and Homeland Security
Critical focus areas & Scope of Work in
developing your Business Strategy
1
Market Landscape
• Govt. & Private Demand estimate
• Core focus of the Security Mission
• Opportunities after 26/11
• Central & State Govt. Stakeholders
• Interdependence of Ministries
• Govt. agencies responsible for implementation
2
Stakeholders
3
Major ProgramsContracting Procedures
• Large programs under implementation & to be announced
• Relationships between the State & Central Govt.
• Contracting & selection methodology
Competitive Landscape
• Understanding & Analyzing CLIENT Product offerings
• Competitive Landscape
• Alignment & Solution Development of GOI/ States
Requirements & Integration with Govt. Programs.
4
5
Page 42
Implications &
Challenges
• CLIENT ’s current bouquet of solutions and its mapping to
India’s requirements
• Developing The Right Channel & OEM Organization &
Strategy
• Building The Right Connects.
Opportunities Unbound – Defense and Homeland Security
The Ministry of Home Affairs
►
India Does Not Have A Concept Of Home Land Security. Apex Body is called Ministry of
Home Affairs. (MHA).
►
Police & Public Order Is A State Subject – List II – 7th Schedule Of Indian Constitution
►
MHA has multifarious responsibilities including internal security, Border Management,
Centre-State relations, administration of UTs, disaster management, & others.
MHA
Department of
Internal Security
Department of
States
► Indian Police Service
► Centre-State relations
► Central Police Forces
► Inter-state relations
► Internal security
► Administration of UTs
► Law and order
► Insurgency
► Terrorism
► Naxalism
► Security clearances
Page 43
► Human rights
► Prison reforms
► Police reforms
Department of Jammu and
Kashmir (J&K) Affairs
► Constitutional
provisions in respect of
the State of Jammu and
Kashmir and all other
matters relating to the
State, excluding those
with which the Ministry
of External Affairs is
concerned
Opportunities Unbound – Defense and Homeland Security
Department of
Border Management
► Management of
international borders
► Strengthening of border
guarding
► Border infrastructure
development
► Border areas
development
Key Trends
► The MHA intend to leverage the capabilities of the private industry in IT and
engineering design for meeting the needs of the homeland security
Focus on private
sector
participation
► The ministry plans to acquire up to 70% of its infrastructure requirements from the
domestic private sector
► There are significant opportunities for the private industry to partner in the MHA ‘s security
upgrade initiatives.
Rising transaction
with international
firms
Increasing role of
para military
forces internal
security
Page 44
► US-based Raytheon and Boeing, Germany’s Carl Walther & Rheinmetall, Britain’s
BAE, Sweden’s SAAB and France’s Thales are attracted by opportunities offered by the
Indian domestic security market
► Further, Indian companies are partnering international specialist companies to acquire the
requisite capability/technology to garner a larger share of the domestic security market in
the country
► Israeli firms are the front-runners to form JVs with the Indian firms:
► Most Israeli firms offer integrated security systems. They have "off-the-shelf"
solutions and have the capacity to tailor make products
► With change in security dynamics, the role of the Para Military forces – Border Management,
Airport protection, sensitive area management , air surveillance is expected to increase
substantially.
Opportunities Unbound – Defense and Homeland Security
FDI, Defense offsets and Entry options
Page 45
Opportunities Unbound – Defense and Homeland Security
A highly regulated sector
FDI in Defense
Production (26%)/
Security Agency in
Private sector (49%)
Ministry of Finance - Approval from Foreign Investment Promotion
Board (“FIPB”) in consultation with Ministry of Defense
(“MOD”)/ Ministry of Home Affairs (“MHA”)
Defense
Production
License application will be considered and given by Department of
Industry Policy and Promotion (DIPP) , Ministry of Commerce in
consultation with MoD
Import of defense
equipment/ raw
material
Export of Defense
products
Page 46
License from Directorate General of Foreign Trade (DGFT) in
consultation with MOD
MOD in consultation with the Ministry of External Affairs
Opportunities Unbound – Defense and Homeland Security
FDI in IT related services and homeland security
►
100% FDI permitted under automatic route in IT- related services including Software
development, system designs, etc. There is no specified sector restriction in the FDI
policy for software development related activities
►
In the past, foreign OEMs have either formed JVs with Indian Cos with more than 26%
FDI or set up wholly owned subsidiaries to provide IT related services including
software development with focus on defence sector
►
Recently, MoD has raised issues in FDI in defence related software development. DIPP
alongwith MoD will shortly release the list of specific defence products/ services which
would be subject to 26% FDI limitation
Homeland
Security
(FDI)
Page 47
Private Security
Agencies
Manufacturing
Facilities
49%
No specified policy exists
Opportunities Unbound – Defense and Homeland Security
Offset policy
►
Offset Policy was introduced as part of Defence Procurement Procedure (“DPP”) 2005 which was
further fine tuned in DPP 2006, 2008 & 2009. DPP provides for an uniform offset of at least 30% in
case of foreign contracts valued over INR 300 crores (USD 62.5 million).
►
Offset is eligible only for value addition done in India i.e. value of imported components will not be
counted towards offset
►
Applicable where the acquisition project is categorized as:
►
►
►
‘Buy (Global)’, i.e. outright purchase of equipment – Minimum 30% offsets
►
‘Buy and Make with Transfer of Technology’, i.e. purchase from foreign vendor followed by
Licensed Production – Minimum 30% offset of the foreign exchange component
Offsets not applicable for following categories:
►
‘Buy (Indian)’, i.e. purchase from Indian vendors only – minimum 30% indigenous content
►
‘Buy (Global)’ including Indian JV with Foreign OEM if indigenous content in the product is at least
50 per cent
►
‘Buy & Make (Indian)’ including Indian JV with Foreign OEM if indigenous content in the product is
at least 50 per cent
►
Fast track procurement
DPP 2008 has added list of defence products/ services to facilitate the foreign vendors in implementing
the offset obligations and such has been broadened by DPP 2011
Page 48
Opportunities Unbound – Defense and Homeland Security
Means to discharge offset obligations
► Direct purchase of, or executing
export orders, for defence
products & components
manufactured by, or specified
services provided by Indian
defence industry
► FDI in Indian defence
industry for industrial
infrastructure for
services, joint ventures
& co-production of
defence products &
components
► FDI in Indian
organizations
engaged in research
in defence R&D as
certified by Defence
Offset Facilitation
Agency (DOFA)
► As per DPP 2011 the words “defence products and Indian
Defence Industries have been modified as “Eligible products
and Indian Industries” to include items and manufacturers /
service providers of Homeland security and Civil aerospace
Page 49
Opportunities Unbound – Defense and Homeland Security
Entry options in India
Liaison office
Offices opened by foreign corporations
in India
►To act as communication channel
between them and Indian customers
►To spread awareness about their
Branch office
Local Indian
Foreign companies may open branch
subsidiary company
offices in India to undertake business
activities as permitted by the RBI
owned subsidiaries in India, subject
such as:
to FDI guidelines
►Consultancy services
►Funding can be via debt, equity &
►Research work
products
internal accruals
►Technical support services
►To explore new opportunities
►No approval required for
►Export/import of goods, etc.
Project office
A foreign corporation which has
secured a project from Indian
Foreign corporations set up wholly
repatriation of dividend
Limited liability
partnership
India, provided:
Form of business where the liability
of the partners is limited to their
agreed contribution to the LLP.
►Project funded by inward remittance
►Capital contribution by partner only
company can set up project office in
from abroad
►Indian entity awarding the contract
in cash
►100% FDI permitted in LLP with
has a term loan from financial
prior approval of FIPB* (in
institution in India
automatic route sector s only)
*FIPB: Foreign Investment Promotion Board
Page 50
Opportunities Unbound – Defense and Homeland Security
Tax exemption for Defence services/
Technology
Tax exemption under
section 10(6C)
Royalty/
Fees for
Technical
services
Agreement
between GOI &
Foreign Company
for security of
India
Exemption is
notified by GOI in
the Official
Gazette of India
Exemption not available
For supply contract – profits arising to Foreign
Enterprise on account of supply of equipment
could be taxable in India if Foreign Enterprise
has a PE in India
Page 51
Opportunities Unbound – Defense and Homeland Security
Direct taxes in India
►
►
Administration
►
►
Regulator: Administration, supervision and control in the area of direct taxes lie with the Central
Board of Direct Taxes (CBDT), which works under the Ministry of Finance.
Indian tax year: The Indian tax year extends from 1 April of a year to 31 March of the subsequent
year. A corporation tax year also ends on the same date.
Submission of return: All corporations (except those who are required to submit transfer pricing
certificate in Form 3CEB in respect of international transactions) are required to file a return of
income (ROI) by 30 September, even in the event of loss.
Payment of advance tax: Corporate tax liability needs to be estimated and discharged by way of
advance tax in four instalments on 15 June, 15 September, 15 December and 15 March every
year.
Corporate income tax
Income tax (individuals)
►Composition:
A corporation’s income of:
from house property
►Income from business
►Capital gains on disposition of capital assets
►Residual income arising from non-business
activities
►Income
►Tax
treaty: If there is a tax treaty between India and
the country of residence of the taxpayers, then
provisions of the Indian Income Tax Act or the tax
treaty, whichever is beneficial will apply.
Page 52
►Liability
of income tax: Liability for income tax is
governed by the residential status of individuals
during the tax year.
►Types
of income subject to tax in India:
income
►Taxation of employer provided ESOPs
►Income from house property
►Self employment and business income
►Capital gains on assets
►Employment
Opportunities Unbound – Defense and Homeland Security
Direct taxes in India – Rates
Rates of corporate tax
Nature of Income
Tax Rates
Corporate income tax
Domestic Corporation (h)
Foreign Corporation
Dividend Distribution Tax
Long term capital gains tax
MAT (Minimum Added Tax)
Withholding Tax
Dividends
Paid to domestic companies
Paid to foreign companies
0
0
Interest
Paid to domestic companies
Paid to foreign companies
10
20
Royalties from patents, know how etc
Paid to domestic companies
Paid to foreign companies
30
40
15
20
18.5
10
10
FTS
Paid to domestic companies
Paid to foreign companies
10
10
Net operating losses
Carry back
Carry forward
0
8
Page 53
Rates of individual tax
Residential
status
Resident and
ordinary
resident
Resident and
not ordinarily
resident
Non-resident
Taxability
►
Worldwide income
►
Income received in India or deemed to be
received in India
►
Income accruing or arising in India or
deemed to accrue or arise in India
►
Income accruing or arising outside India,
either from a business controlled from
India or a profession setup in India
Income received in India or deemed to be
received in India
►
►
Income accruing or arising in India or
deemed to accrue or arise in India*
Income slabs (INR)
Income tax
0–180,000*
Nil
180,001–500,000
10% of income in excess of INR 180,000
500,001–800,000
INR 32,000 plus 20% of income in excess
of INR500,000
800,001 upwards
INR 92,000 plus 30% of income in excess
of INR 800,000
Opportunities Unbound – Defense and Homeland Security
Direct taxes in India – Proposed changes
Direct Tax Code Bill, 2010 (DTC 2010)
►
DTC 2010 marks a new era in the Indian tax scenario after more than 50 years of operation of the current Income Tax Act,
1961. It intends to lend simplicity, flexibility and stability to the taxation system and also reduce the scope for ambiguity and
litigation.
Particulars
Current tax rates under IT Act
Tax rates under DTC 2010
Domestic Company
30%*
30%
Foreign Company
40%*
30%
Not Applicable
15% (New Tax)
DDT
15%*
15%
MAT
18.5%* of adjusted book profits
20% of adjusted book profits
1% on net wealth exceeding INR 3m
1% on net wealth exceeding INR 10m
Branch Profit Tax (BPT)
Wealth tax
* Surcharge and Cess as applicable
Page 54
Opportunities Unbound – Defense and Homeland Security
Information in this presentation is intended to provide only
a general outline of the subjects covered. It should neither
be regarded as comprehensive nor sufficient for making
decisions, nor should it be used in place of professional
advice. Ernst & Young Pvt. Ltd. accepts no responsibility
for any loss arising from any action taken or not taken by
anyone using this material
Thank You
Annexure - List of products eligible for offset
credit
PRODUCTS
► Small arms, mortars, cannons, guns, howitzers, anti tank weapons and their ammunition
including fuze
► Bombs, torpedoes, rockets, missiles, other explosive devices and charges, related
equipment and accessories specially designed for military use, equipment specially
designed for handling, control, operation, jamming and detection
► Energetic materials, explosives, propellants and pyrotechnics
► Tracked and wheeled armoured vehicles, vehicles with ballistic protection designed for
military applications, armoured or protective equipment
► Vessels of war, special naval system, equipment and accessories
► Aircraft, unmanned airborne vehicles, aero engines and air craft equipment, related
equipment specially designed or modified for military use, parachutes and related
equipment
Barco’s product
► Electronics and communication equipment specially designed for military use such as
profile
electronic counter measure and counter measure equipment surveillance and monitoring,
data processing and signaling, guidance and navigation equipment, imaging equipment
and night vision devices, sensors
► Specialized equipment for military training or for simulating military scenarios, specially
designed simulators for use of armaments and trainers
Page 56
Opportunities Unbound – Defense and Homeland Security
List of products eligible for offset credit
►
►
►
►
►
Forgings, castings and other unfinished products which are specially designed for products for
military applications and troop comfort equipment
Miscellaneous equipment and materials designed for military applications, specially designed
environmental test facilities and equipment for the certification, qualification, testing or
production of the above products
Software specially designed or modified for the development, production or use of above items.
This includes software specially designed for modeling, simulation or evaluation of military
weapon systems, modeling or simulating military operation scenarios and Command,
Communications, Control, Computer and Intelligence (C 4 I) applications
High velocity kinetic energy weapon systems and related equipment.
Direct energy weapon systems, related or countermeasure equipment, super conductive
equipment and specially designed components and accessories
Products for Internal Security
► Arms and their ammunition including all types of close quarter weapons.
► Protective Equipment for Security personnel including body armour and helmets.
► Vehicles for internal security purposes including armoured vehicles, bullet proof vehicles and
mine protected vehicles.
► Riot control equipment and protective as well as riot control vehicles
► Specialized equipment for surveillance including hand held devices and unmanned aerial
vehicles
Page 57
Opportunities Unbound – Defense and Homeland Security
List of products eligible for offset credit
Civil Aerospace Product
►
►
►
►
►
►
Design, Development , Manufacture and Upgrade of all types of fixed wing and rotary
wing aircraft or their airframes, aero engines, avionics, instruments and related
components
Composites, forgings and castings of the product
Training Aids viz simulators, associated equipment, software and computer based
training modules
Guidance and navigation Equipment
Test facilities and equipment required for testing, certification, qualification and
calibration of the above products
Software specially designed, developed or modified for the above products
SERVICES
► Maintenance & overhaul of defence products (including defence software)
► Upgradation and life extension of eligible products (including software)
► Engineering, design, testing of eligible products (including software)
► Quality Assurance services
► Training (including training services and equipment excluding civil infrastructure)
Page 58
Opportunities Unbound – Defense and Homeland Security