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Corporate Jul 28, 2012

RIL’s big-bang aerospace entry to tap defence market

By Firstbiz Staff

Aerospace in India is an opportunity waiting to be tapped by private companies as the sector had only state-owned companies until recently.

With the government gradually opening up the sector, more and more private companies are vying with each other for a pie in the lucrative sector.

Reuters

The latest to join the bandwagon could be Reliance Industries.

A report in The Economic Times said the country's largest private conglomerate has applied for an industrial licence to design and manufacture military and civilian aircraft.

The company had a year ago hired then Boeing India chief Vivek Lall as a preparation for making a grand $1 billion entry into the segment, the report said. The company also plans to hire 1,500 for the foray.

It may set up its hub in Nashik, the report said.

However, it has to be noted that the entry has been planned at a time when the country's aviation industry is going through rough weather.

Civil aviation may remain a difficult nut to crack for the time being for the company. But the defence segment offers huge potential.

India has been increasing its defence budget, as the government is apprehensive of collusion between two of its neighbours, China and Pakistan.

The government is unlikely to discontinue its defence procurement any time in the near future and this offers a huge potential for private companies.

The defence market in India is largely dominated by offset contracts. The government has an offset clause in defence procurement contracts with foreign firms, which requires for the foreign company that gets a weapons deal over Rs 300 crore has to plough back at least 30 percent of the value into India.

Since 2007, the country has been able to get offset contracts worth more than $4.27 billion, Times of India report said.

This strategy has helped Indian private companies in the defence market to set up joint ventures with their global peers, which are much-experienced and technologically advanced.

Aircraft and their engines, vehicles, research and development, electronics and construction are some of the key areas in the defence market in India.

State-owned Hindustan Aeronautics Ltd is the biggest player in the defence market here.

by Firstbiz Staff

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