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      Aerospace and Defence sector in India is at an inflection point

      Given the modernisation and indigenisation programmes being undertaken by all the three services of one of the largest military forces in the world. The Ministry of Defence in India has laid out an expansive plan for modernisation of obsolete equipment through the long-term perspective plans, capability plans, capability roadmaps and capital acquisition plans.

      India being one of the largest importers of arms and defence platforms, the three services, supported by specialised inter-service commands and institutions, have collectively taken upon themselves to be harbingers of ‘Make in India’ for hardware and infrastructure being inducted into their fold.  

      The Government of India had also identified the Aerospace and Defence sector as a focus area for the ‘Make in India’ (i.e. ‘Aatmanirbhar Bharat’) programme  has taken considerable steps to push forth the establishment of indigenous manufacturing infrastructure supported by requisite research and development ecosystem.  This is thoroughly evident in the substantial changes introduced in the defence policy framework in 2020, which is now based on the cornerstone of indigenous manufacturing and value addition. With India also opening its space sector for private and foreign participation, this domain could further help in establishing long term opportunities and partnerships, capitalising the synergies in defence and space. 

      An interplay of policies governing the sector clearly carve out the integral role of Indian manufacturing and value addition in future procurements.  One development supporting the above is the establishment of two defence corridors at Uttar Pradesh and Tamil Nadu. These two corridors shall focus upon development of indigenous manufacturing capabilities and in turn become the springboard for all development activities undertaken by the government in the sector.

      The aerospace and defence sector is pivotal to India's economic growth and national security. With the Ministry of Defence designating 2025 as the ‘Year of Reforms’, there is a pronounced emphasis on enhancing domestic defence manufacturing capabilities with a strategic focus on exports. This initiative aims to diminish import dependency and bolster self-reliance. Consequently, new opportunities are emerging for Original Equipment Manufacturers (OEMs) and tier vendors.

      Gaurav Mehndiratta

      Partner and National Leader - Corporate and International Tax, KPMG in India

      Gaurav

      Emerging trends in aerospace and defense 2025

      Explore actionable insights and clear takeaways to better understand the challenges and identify the opportunities in the A&D sector
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      Emerging trends in aerospace and defense 2025

      Driving impact through delivery

      Policy overview
      KPMG in India provides expert interpretation and guidance on the Defence Acquisition Procedure (DAP) 2020, focusing on its provisions related to acquisition procedures. Our team helps clients navigate the complexities of DAP 2020, ensuring compliance and optimising acquisition strategies. We offer insights into the policy's impact on procurement processes, helping businesses align with national defence priorities and achieve their strategic objectives.
      Indigenous content optimisation
      KPMG in India is driving transformational impact by leveraging the Indigenous Content (IC) policy. We devise strategies to enhance Indian value addition and optimise IC, ensuring businesses potentially benefit from enhanced local sourcing and compliance with national priorities. Our services include evaluating the feasibility of meeting IC requirements, assisting in the review of IC computations, analysing compliance requirements for tier vendors involved in contracts, and obtaining express clarifications on IC computations from the Indian Ministry of Defence.
      Industrial license/arms license
      KPMG in India offers expert assistance in navigating the complexities and seeking approvals and clarifications related to industrial license/ arms license requirements on proposed activities for clients as governed by Industries (Development and Regulation) Act, 1951 and Arms Act 1959 and Arms Rules, 1962. Our services include determining the applicability of industrial licenses, obtaining express clarifications on their applicability, and providing extensive support in securing the necessary licenses. Through these tailored services, KPMG in India helps ensure clients achieve compliance and streamline their operations effectively.
      Offsets
      KPMG in India offers an extensive overview of the Indian Defence Offset Policy, fostering indigenous capabilities. We provide detailed mechanics and avenues for offset discharge, ensuring clients are well-informed. Our market landscape analysis highlights numerous offset opportunities, driven by the demand for advanced defence technologies and the government's push for self-reliance. Additionally, we showcase key players fulfilling offset obligations for Original Equipment Manufacturers (OEMs) in India. Through these strategic initiatives, KPMG in India assists clients in navigating the complexities of the offset policy, assist in compliance and maximising benefits.
      Tax optimisation
      KPMG in India is dedicated to providing comprehensive tax-related services, including methodologies for tax optimisation, assisting in availing tax exemptions, identifying tax-optimised business structures, and formulating implementation strategies. Additionally, KPMG in India supports bid preparation through tax cost evaluation and contract review, analyses tax implications on technical and commercial offers, and assists in tax repatriation and devising exit strategies to clients across the globe regarding Indian Regulatory and Taxation laws.
      Import/export policy
      KPMG in India is actively assisting with the policy regarding regulation of defence equipment import and export. We provide expertise in navigating the Indian Trade Classification based on the Harmonised System (ITC HS policy), which includes specific restrictions and prohibitions on the import or export of certain notified goods. Our guidance assists compliance with these regulations, facilitating smooth and efficient trade operations.

      Policy overview

      KPMG in India provides expert interpretation and guidance on the Defence Acquisition Procedure (DAP) 2020, focusing on its provisions related to acquisition procedures. Our team helps clients navigate the complexities of DAP 2020, ensuring compliance and optimising acquisition strategies. We offer insights into the policy's impact on procurement processes, helping businesses align with national defence priorities and achieve their strategic objectives.

      Indigenous content optimisation

      KPMG in India is driving transformational impact by leveraging the Indigenous Content (IC) policy. We devise strategies to enhance Indian value addition and optimise IC, ensuring businesses potentially benefit from enhanced local sourcing and compliance with national priorities. Our services include evaluating the feasibility of meeting IC requirements, assisting in the review of IC computations, analysing compliance requirements for tier vendors involved in contracts, and obtaining express clarifications on IC computations from the Indian Ministry of Defence.

      Industrial license/arms license

      KPMG in India offers expert assistance in navigating the complexities and seeking approvals and clarifications related to industrial license/ arms license requirements on proposed activities for clients as governed by Industries (Development and Regulation) Act, 1951 and Arms Act 1959 and Arms Rules, 1962. Our services include determining the applicability of industrial licenses, obtaining express clarifications on their applicability, and providing extensive support in securing the necessary licenses. Through these tailored services, KPMG in India helps ensure clients achieve compliance and streamline their operations effectively.

      Offsets

      KPMG in India offers an extensive overview of the Indian Defence Offset Policy, fostering indigenous capabilities. We provide detailed mechanics and avenues for offset discharge, ensuring clients are well-informed. Our market landscape analysis highlights numerous offset opportunities, driven by the demand for advanced defence technologies and the government's push for self-reliance. Additionally, we showcase key players fulfilling offset obligations for Original Equipment Manufacturers (OEMs) in India. Through these strategic initiatives, KPMG in India assists clients in navigating the complexities of the offset policy, assist in compliance and maximising benefits.

      Tax optimisation

      KPMG in India is dedicated to providing comprehensive tax-related services, including methodologies for tax optimisation, assisting in availing tax exemptions, identifying tax-optimised business structures, and formulating implementation strategies. Additionally, KPMG in India supports bid preparation through tax cost evaluation and contract review, analyses tax implications on technical and commercial offers, and assists in tax repatriation and devising exit strategies to clients across the globe regarding Indian Regulatory and Taxation laws.

      Import/export policy

      KPMG in India is actively assisting with the policy regarding regulation of defence equipment import and export. We provide expertise in navigating the Indian Trade Classification based on the Harmonised System (ITC HS policy), which includes specific restrictions and prohibitions on the import or export of certain notified goods. Our guidance assists compliance with these regulations, facilitating smooth and efficient trade operations.

      KPMG in India’s advanced capabilities in the space industry

      Market opportunities assessment in the space sector.

      Feasibility studies for space infrastructure.

      Regulatory and policy ecosystem analysis.

      Policy formulation for sectoral advancement.

      Strategic planning and developing vision/mission statements.

      Tax evaluation of proposed business models as well on transfer of technology.

      Business case development and preparation of Detailed Project Reports (DPRs).

      Implementation roadmap design.

      Extensive implementation support through Project Management Unit including bid process management.

      How can KPMG in India help?

      Construction

      The Aerospace and Defence practice has a well-established track record of advising government as well as most of the leading global and Indian original equipment manufacturers and other members of the A&D supply chain. We have a well-defined and robust approach to support our clients effectively across a spectrum of projects in business performance services, transaction services and tax and regulatory services including offset advisory.

      We provide consulting services across the project lifecycle including but not limited to:

      • Defence acquisition procedure advisory
      • Offset advisory and implementation support
      • Bid management
      • Programme management
      • Industrial licensing support
      • Foreign direct investment assistance
      • Market research and entry strategy
      • Partner search and collaboration
      • Transaction services
      • Tax optimisation
      • Supply chain management
      • Technology transformation

      Why select KPMG in India?

      We at KPMG in India recognise the significant opportunity that the Aerospace and Defence sector presents to our clients. We have an extensive team of specialists comprising policy experts, personnel who were formerly with the Indian armed forces, defence procurement and programme development along with subject matter experts from aerospace and defence manufacturing who have previously worked with R&D organisations to assist clients and provide comprehensive services from strategy formulation to execution. Our team is complimented by a strong international network of global defence teams, working in tandem with each other. We have played an integral role in serving most of the major stakeholders of the sector viz.

      Why kpmg in India

      Our credentials across

      Assisted some of the largest players in the world in bid structuring, offset filings, entry strategies and devising offset compliant tax-efficient ownership and operating structures, business restructuring etc. Advised numerous entities (including tier-1 vendors) on policy framework, eligibility as an Indian offset partner, collaboration and other business opportunities, sector landscape etc.

      Collaborated with the government on various critical and strategically important mandates. Official advisors to the government on a number of marque projects like assisting the nodal agencies for both defence corridors in programme management to achieve specific objectives and assisting space authorities to understand the market for satellite services in India and Indian sub-continent region.

      Spearheaded pertinent assignments for public sector undertakings (PSUs) involving diverse range of services like contract negotiation and structuring, strategic and operational assistance in corporatisation and comprehensive market assessment and entry strategy.

      Joined forces with leading industry associations in various capacities including those of leaders, knowledge partners and members. Frequent keynote speakers in knowledge sharing events and active participants in numerous policy advocacy initiatives.

      Being a sensitive sector critical to national security, the A&D sector is one of the most highly regulated sectors of the Indian economy. Our team helps a number of major defence players to navigate through the interplay of various policies and regulations governing the sector, including procurement policy, import and export regulations as well as tax.

      The Aerospace and Defence practice of KPMG in India has also been at the forefront of reform advocacy in the sector. It has led a number of policy-streamlining initiatives with the Ministry of Defence and has developed concept papers and thought leaderships leading to progression of reforms. The firm provided a number of significant inputs to the Indian Ministry of Defence in relation to some important aspects of the procurement policy. Several recommendations contributed towards fine tuning defence contracting in line with global best practices. KPMG in India was also recognised as a key stakeholder in policy formulation by the Ministry while announcing the Defence Acquisition Procedure, 2020.

      The practice holds marquee credentials and significant experience across all areas of consulting engagement. The team has been able to leverage the experience that it has garnered from personal engagement with the Aerospace and Defence sector as well as the engagements taken up as a practice to deliver substantial value to our clients and to assist them in their strategic pursuits in the sector.

      India Union Budget 2025-26: Our Sector Insights

      Download KPMG in India point of view on the Union Budget 2024-25 - Aerospace and Defence

      KPMG in India point of view 2025 - Aerospace and Defence

      Budget 2025 is expected to boost the funding for domestic defence research, space exploration, satellite advancements, and geospatial initiatives

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      Driving growth with Aerospace, Defence & Space trends

      Girish Nair
      Girish Nair

      Partner - Mobility & Logistics, National head - Aviation Sector, Global Lead - Airports

      KPMG in India

      With four international airports, a diaspora spanning 182 countries, over 20 million annual passengers, and international tourism on a strong growth trajectory, Kerala’s aviation ecosystem is not just regional, it is global. The next leap lies in the building a strategy that unites diaspora flows, tourism, cargo, and policy innovation, anchored firmly in sustainability. 

      Hear from the experts

      Manufacturing momentum & military preparedness – Tailwinds & headwinds | Cdr Gautam Nanda
       

      Defence exports have grown phenomenally over the last few years. We are becoming part of the global supply chain and are on our path to achieving our goal with regards to defence exports.

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      India Insights

      Our insights is your gateway to thought leadership and in-depth reports. Explore our curated collection of valuable content, where we delve into complex business challenges, share industry trends, and provide actionable insights.

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      Key Contact

      Gaurav Mehndiratta
      Gaurav Mehndiratta

      Partner and National Head, Corporate and International Tax

      KPMG in India

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