ISRAEL-INDIA Business Guide Defence & HLS | 2014 - page 8

Israel-India Business Guide - Defence & HLS
8
Will India’s economy affect
Israeli Defence companies?
Israel’s defence industry is assessing the effect of the economic situation in India on potential sales
Arie Egozi, I-HLS *
T
he value of India’s currency (Indian rupee) has
fallen by 20 percent since the beginning of the
year – albeit it has picked up somewhat over the
last month and a half. Consequently, the initial US$37.7
billion Defence budget of India has now declined to just
under US$30 billion (approximately).
According to a blog posted in “All Sorts Of Things”, a US$7
billion reduction is not a minor issue for any country’s
Defence budget, but it is especially worrisome for India
because a large percentage of New Delhi’s international
military procurements are done in US currency, and this
decline will hurt the Ministry’s ability to purchase the
equipment that it requires.
The Ministry of Defence could ask the Ministry of Finance
for additional funds but this may be difficult given current
economic adversity. If the Ministry of Defence does
not get these funds or if the rupee does not change
course – unlikely to happen in 2013 – then it will have
no choice but to re-prioritize its procurements and fund
the most urgent first. This will leave a number of Defence
companies without a clear indication of when their sales
will be realized.
Some of the projects that may be affected by this
uncertainty include the Lockheed Martin C-130J Aircraft,
Airbus Military A330 aerial refuelers, naval equipment and
the US$12 billion Medium Multi-Role Combat Aircraft
program.
The future strength of the Indian Defence market will
become clear when data is released showing the level
of funding provided to the Defence Ministry in the next
Financial Year (April 2014-March 2015). A big challenge
is to reduce the fiscal deficit to below 4.8 percent. The
Ministry of Finance may therefore need to prioritize its
expenses. The recent approval of the more than US$20
billion food security bill reflects this policy priority.
In terms of security spending, the government will
most likely initially ensure salaries remain at current
levels and then decide what to spend on procurements.
Notwithstanding this, the security procurements sector,
which procures equipment that supports India’s ongoing
fight against domestic threats, may be prioritized over
other major domestic needs.
Unfortunately, for the vast number of Defence companies
who had only just begun to take advantage of India’s
vast Defence potential, this will force an adjustment of
priorities. Defence spending in the Middle East remains
high but it won’t compensate for the decline in sales in
the Indian market.
On a positive note, India’s diversity will ensure that
it remains a strong market for sales of paramilitary
equipment and if these companies can ensure a strong
presence in that market, then the trajectory of their
bottom line won’t be as severe as estimated.
* The author is Editor of Israel’s Homeland Security website:
The Economy
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