The offset opportunities in defence and aerospace for India are estimated to be $50-60 billion out of the $150 billion market by 2025, said V.K. Saraswat, a member of NITI Aayog.
He said with the recent policy changes, the canvas of offset had increased and it had become profitable to manufacture aerospace and defence systems in India
The former secretary of defence, however, suggested that the country should remove the impediments to tap the huge opportunity the offset offers.
He called for bringing down the cost of capital, increasing investment on research and development, synergy among research laboratories, academics institutions and industry, reverse brain drain, focus on designing, smart manufacturing, value addition and ensuring quality and on time delivery.
Saraswat, who also served as scientific advisor to the defence minister, pointed out that the Maintenance Repair and Overhaul (MRO) alone offered $2.6 billion opportunity by 2020 but disability factors were impeding the growth.
He said new MRO facilities were not coming up because of the impediments like high taxation. "Most of our aircrafts go to Singapore, Malaysia and Dubai for MRO. The reason is state governments have got huge VAT and other taxation on all the spare parts which come here. On top of it, the government of India has some duties. This tax structure is not making the service sector competitive."
He said even transportation cost of taking the aircraft to Sri Lanka or Dubai was lower than doing business here.
The defence scientist pointed out that the high cost of capital was another disability factor. He also called for infrastructure development and supply of electricity at reasonable rate to tap the potential.
He hoped that the civil aviation policy will address issues like high taxation.
The former director general of DRDO believes that if the ease of doing business was ensured and some disability factors taken care of as part of 'Make in India' programme, investment in defence will rise considerably.
"Already there are agencies wanting to set up lot of activities in Bengaluru, Hyderabad and Pune. If we increase 49% (FDI cap) to more on case to case basis, that will also attract more investment."
Stating that the sector will not be sustainable unless there were exports, Saraswat was optimistic the exports would get a push with the proposed policy.
He said India could tap the export potential by selling defence systems like Akash missile to friendly countries. He believes India would have an edge because the cost of manufacturing was still competitive.