Karnataka is an attractive investment destination for the aerospace industry

PricewaterhouseCoopers ( PwC) and the Confederation of Indian Industry (CII) today released a report titled Karnataka* – Aerospace Hub of India. The report highlights Karnataka as a very attractive destination for the industry due to a number of reasons- the existing supply chain developed by old-economy aerospace and engineering firms,  an investor friendly government with simplified procedures,  and fast-track business approvals through single window clearance mechanism and a collective commitment to make the state the Aerospace hub of India.  The report also notes that the global recession and significant margin pressures will continue to force global OEM and Tier-1 suppliers to undertake major restructuring and cost cutting exercises.  Emerging economies like India, which provide significant cost benefits are being increasingly considered as an outsourcing destination for manufacturing.  The defence offset policy and its inherent strengths position Karnataka as an attractive investment destination for the aerospace industry. 

The report is based primarily on interviews with industry participants, secondary research and internal insights. It however, points out that as in the rest of the country; infrastructure is a key challenge in Karnataka. While infrastructure facilities have improved there is a need to do more and develop more robust infrastructure.

Dhiraj Mathur, India Leader for Aerospace & Defence practice, PricewaterhouseCoopers commented:

“We are delighted to have partnered with the State Government and CII for this report on emergence of Karnataka as an aerospace hub. We visualise a growing trend in establishment of customer support centers for stocking spare parts, avionics repair workshops, logistic centers to optimise supply chain management, training centers for training of technicians, engineers, managers and innovation centers for engineering in Karnataka. 

Offsets provide an added incentive to global aerospace majors and their suppliers who are already seeing benefits in establishing a strong presence in India. The effective implementation of the offset policy coupled with an   attractive FDI policy can tremendously speed up the pace of indigenisation.”

The report also brings to fore the fact that ever since Hindustan Aeronautics Limited (HAL) was established in Bangalore in 1940, Karnataka has come to be regarded as a pioneer in the aerospace industry. 

On the reasons why Karnataka was the perfect destination, Aroon Raman, Chairman, CII Karnataka, added:

“The State is well-positioned as an aerospace destination due to the activities of numerous aerospace companies and PSUs engaged in manufacturing, design and development, and Maintenance, Repair and Overhaul (MRO). In addition, several educational, scientific and technical educational institutions are fostering domain expertise in IT, engineering and design skills that can be leveraged by aerospace majors.”

Selected advantages that Karnataka offers as a hub for aerospace activities include:-

• Presence of scientific and technical institutes: The presence of institutions like the Indian Institute of Science and Indian Institute of Management, enable the development of well-qualified technical experts who can be absorbed into aerospace majors’ operations. 
• Deep aerospace expertise: Major aerospace organisations are located around Bangalore, including HAL, National Aerospace Laboratories (NAL), QuEST Global, Taneja Aerospace and Aviation Ltd, Dynamatic Aerospace, Air Works India Engineering Pvt. Ltd., The Society of Indian Aerospace Industries and Technologies, etc.  Thus an existing supply chain ecosystem has been developed by these organisations.
• IT expertise and skill sets: Since independence in 1947, Bangalore has developed into one of India's major economic hubs and is today known as the Silicon Valley of India.  Karnataka boasts the presence of major IT companies such as HCL, Infosys, Tata Consultancy Services, Wipro, QuEST among others.  Karnataka-based professionals have developed deep IT domain experience. Bangalore is the world’s fourth-largest technology cluster. 
• Manufacturing Expertise: Bangalore is a leader in heavy manufacturing due to the presence of PSUs, software companies, aerospace companies, telecommunications companies, machine tools manufacturers, heavy equipment manufacturers, defence establishments, etc.  Bangalore serves as headquarters to several public manufacturing heavy industries such as HAL, NAL, Bharat Heavy Electricals Limited (BHEL), Bharat Electronics Limited, Bharat Earth Movers Limited (BEML) and Hindustan Machine Tools (HMT).
• Proximity to vendor base: There are approximately 2,000 small and medium enterprises focused on component manufacturing, tooling and testing equipment, and assembling.  These companies meet the demand of HAL, NAL and ISRO in addition to global aerospace firms.
• Government support: The State Government is investor-friendly and has simplified procedures and fast tracked approvals through Single Window Mechanism and the State High Level Clearance Committee (for investments greater than INR 50 crore) with the objective of faster clearance of proposals. Further, the State has been making efforts to ensure that the infrastructure requirements of the industry are met and has proposed to set up an aerospace SEZ, near Bangalore International Airport at Devanahalli, where 1000 acres are to be devoted to expansion of aerospace activity, particularly MRO outsourcing. QuEST Global has already oriented its SEZ for Precision Engineering to become India’s first aerospace SEZ in Belgaum in November 2009. The State Government is also promoting setting up of an aerospace university in partnership with industry

Other key findings of the report are as follows:

• Domestic aircraft demnd, cost arbitrage and India’s Offset policy, are compelling aerospace majors to consider setting up subsidiaries, enter into joint ventures or outsource design, components, sub-systems, accessories to the Indian aviation industry.
• India received the largest number of R&D and engineering design investments of which a major portion was awarded to Karnataka. 
• The Government of Karnataka has formulated a State Policy for Special Economic Zones as per Central SEZ Act 2005 & Rules 2006, with a view to provide a hassle free environment for export production and to attract FDI. 
• The existing supply chain developed by the DPSUs, a high concentration of mature IT and engineering services firms, an investor friendly government with simplified procedures, combine to make Karnataka a very attractive investment destination for the aerospace industry.

About PricewaterhouseCoopers
PricewaterhouseCoopers Pvt. Ltd. (www.pwc.com/India) provides industry - focused tax and advisory services to build public trust and enhance value for its clients and their stakeholders.  PwC professionals work collaboratively using connected thinking to develop fresh perspectives and practical advice.

Complementing our depth of industry expertise and breadth of skills is our sound knowledge of the local business environment in India.  PricewaterhouseCoopers is committed to working with our clients to deliver the solutions that help them take on the challenges of the ever-changing business environment.

PwC has offices in Ahmedabad, Bangalore, Bhubaneshwar, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune.

“PricewaterhouseCoopers”, a registered trademark, refers to PricewaterhouseCoopers Private Limited (a limited company in India) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.     
     
The name PricewaterhouseCoopers is one word, with uppercase P, uppercase C, and all other letters in lower case.