Yahoo Finance India's private sector firms eye defence contracts; government borrowing surges in Pakistan
Indian private sector companies are set to secure defence contracts worth Rs 60,000 crore ($8.1 billion) in the fiscal year 2024-2025, accounting for roughly 22% of the industry's total value, according to a report by ICRA published on Tuesday. This development is part of India's broader push to reduce reliance on foreign defence equipment and promote domestic production.
The private research report also projected that defence production by private companies would witness a compound annual growth rate of around 20% over the next three years, reaching Rs. 34,000 crore ($4.6 billion) by FY2026. Despite this positive outlook, the government is expected to fall short of its Rs 1.75 lakh crore ($23.6 billion) annual defence production target by FY2025, with estimates suggesting a reach of Rs 1.6 lakh crore ($21.6 billion) by FY2026.
"The land and information&communications technology (ICT)-based segments are expected to witness increased private sector participation," said Ashish Modani, Vice President and Co Group Head at ICRA, adding that public sector undertakings would maintain their dominance in the naval, aerospace and armaments segments.
To bolster private investments in the defence sector, the Indian government has implemented several initiatives. These include allowing up to 74% foreign direct investment (FDI) in the sector through an automatic route and establishing two Defence industrial corridors in Uttar Pradesh and Tamil Nadu. The launch of the indigenisation portal (SRIJAN) has further facilitated interaction between stakeholders and vendors, helping identify domestic capabilities and reducing import needs.
These policy efforts have resulted in a significant decrease in procurement from foreign vendors, down to 32% in FY2023 from 61% in FY2008. Additionally, India's defence exports have seen a substantial increase, jumping to Rs 15,920 crore ($2.1 billion) in FY 2022-23 from Rs 1,521 crore ($205 million) in FY 2016-17, marking an average annual growth of 48%.
Meanwhile, in Pakistan, the federal government's net borrowing has surged to Rs. 1.6 trillion ($9.5 billion) in the ongoing quarter of the current fiscal year (FY24), as per data from the State Bank of Pakistan (SBP). This figure represents a significant increase from Rs. 261 billion ($1.5 billion) raised during the same period last year. The government has borrowed over Rs. 1.6 trillion from the local banking sector until September 8 to meet its financial requirements for running state affairs.
The government's borrowing from scheduled banks for the first quarter of FY24 reached Rs. 1.5 trillion ($9 billion), primarily aimed at bridging the budget deficit. Overall, net government sector borrowing for budgetary support totaled Rs. 3.74 trillion ($22.3 billion) in FY23 against Rs. 3.13 trillion ($18.7 billion) in FY22.
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