Over the last two decades, several areas of the economy have been deemed sunrise sectors. This billing meant broad recognition of the sector’s potential to generate vast amounts of jobs and revenue. Policymakers put in place measures such as tax breaks to encourage these sectors. In the past, information technology (IT) and biotechnology (BT) were the two most prominent holders of the sunrise-sector tag. Today, if there is a sector that truly merits that billing, it is aerospace and defence manufacturing. At upwards of $50 billion, India has one of the largest defence budgets in the world. By 2018, it is expected to be in the vicinity of $56 billion. In the commercial aviation sector, India remains one of the highest traffic growth markets. It is estimated to become the third-largest aviation market in the world by 2025, and will likely need nearly 1,500 new commercial aircraft by 2030.

The government is well aware that timely execution of the modernization plan hinges on creating a large base of domestic manufacturing. It has introduced the long-awaited strategic partnership model that will allow partnerships with overseas companies to manufacture everything from submarines to fighter jets in India. It also opens the doors for Indian companies to form joint ventures with multinational original-equipment manufacturers (OEMs) for defence production. This model has the potential to create a high-tech defence manufacturing ecosystem. That, in turn, will help in the emergence of cutting-edge mid-sized ancillary companies, along the lines of German mittelstand firms that are relatively small but best-in-class. Indian manufacturers that offer high-quality and innovative solutions at a low cost could become the preferred suppliers for global firms. A handful of midsized Indian companies are already doing that.

Manufacturing for the aerospace sector is a complex exercise for a number of reasons. It is capital-intensive, has high technological requirements and a prolonged gestation period. Apart from these, there are also the systemic challenges manufacturers face in terms of the supply chain itself. While the industry has come a long way, it is still evolving to overcome the challenges it has traditionally faced: costly raw materials, skilled labour, technological requirements, and the procurement of parts from multiple manufacturers.

A drive towards globalization of the aerospace supply chain has been fuelled by the lowering of trade barriers, decreasing communication and transport costs, the emergence of global service firms and shortage of skilled labour in home markets. This is good news for private companies.

There are three key challenges companies face in the aerospace and defence (A&D) sector: access to technology and talent, building scale in a business that is extremely capital-intensive, and the enabling infrastructure and policy environment which can be clubbed together as what is known as the ease-of-doing-business basket.

Infrastructure plays a critical role in building an A&D manufacturing base. It requires all stakeholders to think in terms of creating the right ecosystem. The automobile manufacturing sector benefited from having ancillary hubs around large car plants located in Gurugram, Chennai and Pune. The government would do well to encourage the creation of A&D hubs too. Creating clusters helps micro, small and medium enterprises (MSMEs) that supply components and sub-assemblies to large manufacturers. The long gestation period and capital intensity often create entry barriers for SMEs in this sector. Vibrant clusters would make it easy for companies to have access to talent and create synergies on logistics.

There is already some visible success on this front. Telangana is home to the country’s first public aerospace and precision engineering special economic zone (SEZ). Karnataka too is setting up similar facilities. Boeing continues to expand its footprint in the country in the form of the Boeing India Engineering and Technology Center (BIETC) which is the Indian counterpart to its research and technology organization in the US.

What is required in an ideal ecosystem is the setting up of facilities which cater to multiple stages of the supply chain, all in one location. Such manufacturing hubs should ideally allow companies to carry out fabrication, machining, forging, warehousing and a whole lot more in one place. The target is to create an integrated aerospace ecosystem which enables customers to source all their requirements from one place to hasten the time-to-market.